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Baosteel's net income sinks 98% as slump hits demand

BAOSHAN Iron and Steel Co, China's top listed mill, said quarterly earnings plunged 97.7 percent from a year earlier as a global recession hurt demand and prices.

Net profit for the first quarter of the year was only 89 million yuan, or 0.01 yuan per share, it said in a filing to the Shanghai Stock Exchange yesterday, missing analysts' forecast. Still it was a reversal from a net loss of 6 billion yuan in the previous quarter.

To return to the black despite difficult market conditions, Baosteel said it had focused on cost control and increased the proportion of products in which the company has an advantage. Major Chinese mills incurred wider losses last month due to sluggish demand and overcapacity, after smaller ones raised output.

"Although the government has unveiled a steel industry rejuvenation plan and raised export tax rebates on some products, it would take time for the positive measures to take effect," Baosteel said, warning that first-half earnings may again plunge.

Baosteel has kept prices for major products unchanged for June after cutting them for this month and next, a move analysts said reflected its outlook that prices may stop falling beyond June.

Separately, Chinese mills and major global iron ore producers have agreed to a cut in new annual term prices for the steel-making ingredient, but there is a wide disparity over the size of the reduction between the two sides, according to Luo Bingsheng, vice chairman of the China Iron and Steel Association.

China wants a cut of at least 40 percent, but miners such as Brazil's Vale and Australia's Rio Tinto have hinted they would offer a 20-percent reduction. A cut of 20 percent will grossly underestimate the oversupply of iron ore, Luo said yesterday.

Miners' hopes of a recovery in demand in the second quarter are slim given the domestic economic situation, he said.


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