Steel production cuts affect revenue, listed steel companies’ earnings growth slowed in the third quarter

As of October 13th, 8 listed steel companies including Shougang and Shagang have issued performance forecasts for the first three quarters. Judging from the forecast situation, in the first three quarters of this year, benefiting from the improvement of the industry’s prosperity, the profitability of listed steel companies is still at a high level, and the net profit attributable to the parent has achieved substantial year-on-year growth. However, from a single quarter in the third quarter, the year-on-year growth rate of net profit of steel companies generally slowed down, and individual companies even experienced a year-on-year decline in net profit.

In this regard, industry insiders stated that under the guidance of the goal of “guaranteeing a year-on-year decline in crude steel output in 2021”, the national steel industry has successively reduced production since the third quarter. The “dual control of energy consumption” measures have become stricter in various regions, the steel industry has increased the production limit, and the steel production reduction has exceeded market expectations. Benefiting from factors such as high steel prices and declining raw material costs, the production profits of steel companies have continued to rise, supporting the overall profitability of steel companies. However, the decline in steel production and sales in the third quarter has slowed down the profit growth of steel companies.

The forecasted net profit growth ceilings of the first three quarters announced by the eight listed steel companies were weaker than those in the first half of the year. Shougang Co., Ltd. expects to achieve a net profit of 5.64 billion yuan to 6.04 billion yuan in the first three quarters, a year-on-year increase of 380% to 414%, which is weaker than the 556% year-on-year growth rate in the first half of the year. From a single quarter perspective, Shougang Co., Ltd. expects to achieve a net profit of 2.207 billion yuan to 2.607 billion yuan in the third quarter, an increase of 238% to 300% year-on-year, which is weaker than the 634% year-on-year growth rate in the second quarter.

Individual steel companies experienced a year-on-year decline in their profitability in the third quarter. Sangang Minguang expects to achieve a net profit of 574 million yuan attributable to the parent in the third quarter, a year-on-year decrease of 28.16%. Sangang Minguang said that in the third quarter, affected by the policy of reducing crude steel production, the company’s steel output fell year-on-year, and the company’s main steel product sales margins narrowed. The single-quarter profit in the third quarter fell year-on-year.

Looking forward to the fourth quarter, the Guosen Securities Metals team stated that in the short term, the control of crude steel production will directly affect the profitability of the industry and enterprises. In October, there is still greater pressure to complete the crude steel output leveling target, and the production limit will begin in autumn and winter. The magnitude of the output pressure drop will directly affect the profit situation of the company. The early production increase is small and the regional energy consumption pressure is small for steel companies Will benefit even more.

Zhang Qiusheng, director of the Marketing Department of Nanjing Iron and Steel Co., Ltd., said that steel prices are expected to continue to rise in the fourth quarter, and the profits of steel companies will continue to expand. On the supply side, crude steel production reduction and “dual control of energy consumption” policies are strictly implemented. It is estimated that crude steel will be reduced by 14.2 million tons per month from September to December, a decrease of approximately 15.4%. In terms of demand, with the accelerated issuance of local government bonds, the increase in construction of major projects, and the recovery in demand from industries such as automobiles and home appliances, demand in the fourth quarter may be better than that in the third quarter.