China's metal smelters' profits slip 11.9% over Jan-Feb

Chinese non-ferrous metal smelters posted profits totaling Yuan 17.8 billion ($2.8 billion) over January and February, down 11.9% on year, according to the latest statistics released by China's National Bureau of Statistics (NBS) on March 27.

Chinese non-ferrous metal smelters posted profits totaling Yuan 17.8 billion ($2.8 billion) over January and February, down 11.9% on year, according to the latest statistics released by China's National Bureau of Statistics (NBS) on March 27.

The decline is in sharp contrast to the 97.7% year-on-year growth in Chinese steel mills' profits over the first two months, Mysteel noted.

"One reason for the dip in profits is that the production costs (among non-ferrous metals producers) rose substantially but (their) prices failed to catch up," an analyst from China Metal Information Network Antaike explained.

The NBS data showed that the operational costs of the smelters and refiners increased 13% year on year to Yuan 699.7 billion during the two months.

As of February 28, Mysteel's average price of domestic bauxite had surged by 25.5% on year to Yuan 330/tonne while the average price of primary aluminum had only gained 3.98% on year to Yuan 14,052/t. Aluminum accounts for over 80% of China's total non-ferrous metal production, the analyst told Mysteel.

"Intensive environmental protection measures introduced since late last year have led to the closure of many small mines, which tightened bauxite supply and boosted the price of the ore. However, aluminum producers were not able to pass along the higher prices of their raw materials in their finished metals prices as downstream demand was weak and users would resist," a Shanghai-based Mysteel analyst said.

The increase in interest rates charged by domestic banks also contributed the higher costs of smelter operations, according to an official from Soochow Futures. "Many state-owned enterprises are still heavily reliant on bank loans," he said. The overnight Shanghai interbank offered rate (SHIBOR) rose 5.05% on day to 2.5935% on March 27, Mysteel notes.

Over January and February, the total profit of Chinese industrial enterprises reached Yuan 968.9 billion, up 16.1% on year, according to NBS statistics.

Written by Olivia Zhang, zhangwd@mysteel.com
Edited by Russ McCulloch, russ.mcculloch@mysteel.com

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