Reuters reported that Asia's major steel companies are likely to show that the January to March 2012 quarter was their low point but a robust recovery is not on the cards as China continues to ramp up output amid slowing demand.
The euro zone debt crisis and tight credit conditions in China, the world's biggest steel consumer and producer, cut steel demand and squeezed margins despite falls in raw material costs, prompting South Korea's POSCO, Asia's most profitable steelmaker, to describe the quarter as the most difficult earnings period.
Earnings at Japanese mills, led by Nippon Steel and JFE, are seen plunging to their worst levels since early 2009 after the Lehman crisis, while profit at POSCO, the world's third biggest steelmaker, is seen cut in half.
In China, which produces around half of the world's steel, the sector tumbled into a loss of about CNY 1 billion in the first quarter from a profit of CNY 25.8 billion a year ago. Price improvements in China have been small in March 2012 and April 2012, when prices normally pick up as construction recovers from the winter lull.
Mr Jeremie Capron, a Singapore based analyst at brokerage CLSA, said that "China's demand continues to slow and we haven't seen a robust improvement as we usually see at this time of the year. The worst was probably January to March 2012, but I don't think we see a significant improvement in the current quarter."
Mr Hwang Eun yeon chief marketing officer of POSCO told Reuters that "The global steel market seems to have hit the bottom after a series of falls in steel prices halted in China." He added the company was considering reducing price discounts as the recovery takes hold.
Mr Park Hyun wook, an analyst at Hi Investment & Securities, however, expects POSCO's second quarter results to fall short of its normal level of KRW 1 trillion, with China demand recovery seen sluggish, especially from the construction and automotive sectors.
Some other analysts were also skeptical of an early demand recovery in China.
Mr Yang Baofeng, a steel analyst with Orient Securities, said in a research note that "The steel market fundamentals haven't largely improved yet as demand from property, machinery and auto sectors remains low."
Mr Kazuhiro Harada, analyst at SMBC Nikko Securities in Tokyo, said that he expects the Chinese government to announce an economic stimulus package in the first half of this year, boosting demand.
A small bright spot is India, where easing raw materials costs and a cut in interest rates this week could boost margins in coming quarters although uncertainty about demand continues to be an overhang. Among the top local producers, Steel Authority of India Limited and JSW Steel may see an improvement in margins. TATA Steel is forecast to report a nearly two thirds fall in January to March 2012 quarter profit, mainly due to weak prices and tepid demand at European unit Corus, which accounts for most of its global capacity of 28 million tonnes.
Source: Reuters