Knox Associates Say Outlook Improving For China Steel Mills.

Online, September 4, 2009 (Newswire.com) - Baoshan, China's largest mill, may record a 98 percent profit slide for the first six months, and earnings will rebound to $1 billion in the second half from a loss a year ago, Knox Associates said. The wealth management firm added that infrastructure projects and explosive steel demand will end a year of earnings declines.

In an email to clients and shareholders, Knox Associates said that they expect profitability to improve as a result of contract price increases and lower costs, adding that demand is particularly strong from the automobile, infrastructure and real-estate industries.

Steel output reached a record and prices have soared 29 percent since the government announced a 4 trillion yuan ($586 billion) stimulus package in November to revive the economy. Record passenger car sales and a surge in construction have spurred demand, while costs of raw materials have dropped.

Angang, a unit of China's second-largest steelmaker, may post a first-half loss of as much as 2.99 billion yuan today, according to data referenced in the Knox Associates report. Last November, Baoshan Steel's parent, the world's third-largest mill, said output, sales and profit plunged as the company faced its "most difficult" period since its founding 30 years ago.

Profit for mills this quarter may rise between 30 percent to 50 percent from the three months ended June, according to analysis undertaken by the regional Knox Associates team, who reiterated their belief that if the results match or beat market expectations, steel stocks would likely rise further.

Demand will improve in the second half, the China Iron & Steel Association said July 31. The nation's 71 largest mills posted a combined profit of 3.55 billion yuan in June, the second gain after seven months of losses, the Ministry of Industry and Information Technology said July 29.