Shares of China Baosteel Iron and Steel Co yesterday jumped 2.25 percent after it reported a 15.88 percent rise in first-quarter earnings, which exceeded analysts' expectations.
Income of China's largest steelmaker was 47 billion yuan from January to March, up 9.3 percent from last year. Its earnings per share were 0.24 yuan. Net profit jumped 96.3 percent from the fourth quarter last year to 4.26 billion yuan.
Analysts attributed the better-than-expected earnings mainly to the large increase in steel product prices, which have fully offset the rise in raw material costs.
Baosteel raised carbon steel prices by 200 to 300 yuan per ton in the first quarter, while its iron ore purchase prices remained the same as in 2007. "The company's gross profit margin rose 2.9 percentage points to 15.7 percent in the first quarter," said Luo Wei, an analyst at China International Capital Corp Ltd.
Yang Baofeng, an analyst at Orient Securities, said earnings also benefited from the lowering of income tax to 25 percent from the beginning of this year. Meanwhile, the company's stainless steel business was back in the black after suffering huge losses in the fourth quarter.
"Baosteel's earnings in the second quarter are expected to be better than that in the first because of a much bigger price rise in the second quarter," said Zhou Xizeng, an analyst at CITIC Securities.
Baosteel has raised carbon steel prices by 800 yuan per ton from April. "Prices of raw materials, including iron ore and coking coal, are expected to rise around 400 yuan per ton in the second quarter," said Luo. "The 65 to 71 percent surge in iron ore prices will begin to show its impact on costs from May."
Analysts said Baosteel is also expected to further raise steel product prices in the third quarter, which will probably be announced in late May.
"Steel prices are expected to continue to run at a high level in 2008 because of the declining supply growth and the huge domestic demand," said Yang.
Statistics from China Iron & Steel Association (CISA) released yesterday showed crude steel production growth slid 13.78 percent in the first quarter while its consumption jumped 13.92 percent.
A total of 72 steel companies tracked by CISA reported income growth of 36.26 percent to 589.9 billion yuan and a net profit growth of 26.47 percent to 44 billion yuan.
Source:China Daily
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