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ECONOMY
Weekly Watch> WEEKLY WATCH NO. 19, 2011> ECONOMY
UPDATED: May 6, 2011 NO. 19 MAY 12, 2011
Steelmakers' Woes
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Chinese steelmakers are facing some serious headwinds as skyrocketing iron ore prices eat into their profits.

The China Iron and Steel Association (CISA) said 77 large steelmakers across the country raked in combined profits of 24.46 billion yuan ($3.8 billion) in the first quarter, with an average profit margin of 2.91 percent, well below the average ratio of 6.2 percent for all major industrial sectors.

Worse still, 10 companies spilled red ink, with losses totaling 650 million yuan ($100 million), said the CISA.

The iron ore prices continue heading north, putting Chinese steelmakers in a tight spot, said Qu Xiuli, Deputy Secretary General of the CISA.

China's iron ore imports soared by 14.4 percent to 177 million tons in the first quarter, while the average price rose by 59.5 percent year on year.

China is in a weak bargaining position as the three global mining giants—Vale, BHP Billiton and Rio Tinto—have monopolized around 70 percent of global supplies.

Meanwhile, serious overcapacity has rubbed salt into wounds of the steelmakers, said Qu. In 2010, China's crude steel output amounted to 626 million tons, accounting for more than half of the world's total crude steel output.

In response, the country will further consolidate the fragmented industry and step up a clampdown on polluting and energy-depleting capacities, said Zeng Jiesheng, a senior analyst with the Mysteel.com, a steel information service company based in Shanghai.

Efforts are also needed to strengthen iron ore exploration at home and wean the country's reliance on imports, he said.



 
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