baoshan iron & steel co.,ltd. 1h15 resultsdemand and supply...
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August 2015
Baoshan Iron & Steel Co.,Ltd.1H15 Results
Disclaimer
The following presentation distributed herewith includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that Baoshan Iron & Steel Co.,Ltd.(Baosteel) expects or anticipates will or may occur in the future are forward-looking statements.
Baosteel’s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to price fluctuations, actual demand, exchange rate fluctuations, competition and other risks and factors beyond our control.
1
2
1H Results1H Results1H Results1H Results
Industry Dynamics
Contents
Unit 1H15 HoH YoYCrude Steel Output million tons 11.0 ↑5.9% ↓1.4%
Sales Volume million tons 10.7 ↑0.9% ↓4.6%
Total Operating Income billion RMB 80.9 ↓10.1% ↓17.2%
Operating Cost billion RMB 71.5 ↓11.4% ↓18.9%
Gross Profit billion RMB 9.3 ↑ 0.9% ↓1.1%
Gross Margin % 11.47 ↑1.24 ppts ↑ 1.86 ppts
Total Profit billion RMB 4.4 ↑15.6% ↓1.6%
EPS RMB/share 0.19 ↑18.8% -
BVPS RMB/share 6.98 ↑0.6% ↑2.8%
Weighted ROE % 2.76 ↑0.43 ppts ↓0.07 ppts
Leverage % 46.78 ↓1.1 ppts -
Operation OverviewOperation OverviewOperation OverviewOperation Overview
1H Highlights1H Highlights1H Highlights1H Highlights
Note:“median and large sized steel mills” refers to 101 CISA member steel millsData source: CISA, Company statistics
� Maintain best performanceBaosteel created 270% of total profit of median and large sized steel mills with only 3.4% of crude steel output in 1H
RMB 4.4bn
RMB 1.6bn
RMB -21.7bn
Total Profit Total Profit Main BusinessProfit
Proportion of loss makers: 42.6%
Baosteel median and large sized steel mills
1H Highlights1H Highlights1H Highlights1H Highlights
� Overall preparation for BF ignition of Zhanjiang project
2013
April, 2015
2014
June, 2015
July, 2015
September, 2015
First iron ore ship berthed in Zhanjiang raw material port
1# and 2# units of power plant under operation
1B coke oven put into operation
1# BF ignition
� Breakthrough in high end products
World debut of new grade of 3rd generation auto sheet: QP1180GAAuto sheetNon-oriented silicon steel
UOE pipe Supply in batches for the first European order ”Turkey TANAP project”
Oil pipe
Acquire new energy vehicle certification from BYD, replace imported material
Drill pipe Supply super high tenacity drill pipe for CNPC Tarim oilfield, with record breaking drill depth of 8038m
Marine engineering steel
Supply high grade marine engineering steel for CIMC, support offshore oil exploration in the South China Sea
Supply high standard oil pipe for BP project in Oman
1H Highlights1H Highlights1H Highlights1H Highlights
� “internet + steel”, to build an ecosystem for steel industry
Ouyeel steel trading
Ouyeel Commerce
Baosteel Baosteel Group51% 49%
Ouyeel logistics3rd party steel trading platform
1H trade volume 2.9mn tons, up 63% YoY;registered clients 35thousand (RMB 2bn)
Modernized logistics and warehousing systemAffiliated warehouses near 200, with domestic turnover capacity of 50mn tons
Ouyeel financeOwn financial licenses of settlement, mortgage, factoring3rd party settlement of “Oriental pay”in 1H: RMB 18.5bn;strategic cooperation agreement with 13 banks, acquire RMB 162.7bn credit line
Ouyeel materialBuild technical protocols from grade to spare parts, invite over 500 traders to join the platform
1H Highlights1H Highlights1H Highlights1H Highlights
Unit: Unit: Unit: Unit:
million tonsmillion tonsmillion tonsmillion tons
1H151H151H151H15 HoHHoHHoHHoH YoYYoYYoYYoY
Crude SteelCrude SteelCrude SteelCrude Steel
OutputOutputOutputOutput
11.0 ↑ 5.9% ↓ 1.4%
Operating ResultsOperating ResultsOperating ResultsOperating Results
11.1 10.4 11.0
1H14 2H14 1H15
11.2 10.6 10.7
1.0 1.2 1.11H14 2H14 1H15
Unit:Unit:Unit:Unit:
million tonsmillion tonsmillion tonsmillion tons
1H151H151H151H15 HoHHoHHoHHoH YoYYoYYoYYoY
SalesSalesSalesSales 10.7 ↑ 0.9% ↓ 4.6%
Including:Including:Including:Including:
exportexportexportexport
1.1 ↓ 13.0% ↑ 4.0%
97.8 90.0 80.9
1H14 2H14 1H15
88.2 80.7 71.5
1H14 2H14 1H15Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
1H151H151H151H15 HoHHoHHoHHoH YoYYoYYoYYoY
Total Operating Total Operating Total Operating Total Operating
IncomeIncomeIncomeIncome
80.9 ↓ 10.1% ↓ 17.2%
Unit:Unit:Unit:Unit:
billion RMBbillion RMBbillion RMBbillion RMB
1H151H151H151H15 HoHHoHHoHHoH YoYYoYYoYYoY
Operation CostOperation CostOperation CostOperation Cost 71.5 ↓ 11.4% ↓ 18.9%
Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
1H151H151H151H15 HoHHoHHoHHoH YoYYoYYoYYoY
Gross ProfitGross ProfitGross ProfitGross Profit 9.3 ↑ 0.9% ↓ 1.1%
Gross MarginGross MarginGross MarginGross Margin 11.5% ↑ 1.2ppts ↑ 1.9ppts
Gross ProfitGross ProfitGross ProfitGross Profit
9.4 9.2 9.3
9.6% 10.2% 11.5%
1H14 2H14 1H15
HRCHRCHRCHRC 39%39%39%39%
CRCCRCCRCCRC 43%43%43%43%
OthersOthersOthersOthers 6%6%6%6%
TubeTubeTubeTube 7%7%7%7%
PlatePlatePlatePlate 5%5%5%5%
Sales BreakdownSales BreakdownSales BreakdownSales Breakdown
Gross Margin by ProductGross Margin by ProductGross Margin by ProductGross Margin by Product
HRC
Others Tube
Plate
CRC
14.5%17.7% 14.9% 17.0%
2.6%
-1.3%
11.1%
0.4%
-10.5%-5.8%■ 1H14
■ 1H15
Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
RevenueRevenueRevenueRevenue YoYYoYYoYYoY GrossGrossGrossGross
MarginMarginMarginMargin
YoYYoYYoYYoY
SteelSteelSteelSteel MakingMakingMakingMaking 51.4 ↓ 20.5% 12.2% ↑ 2.5 ppts
DistributionDistributionDistributionDistribution 72.8 ↓ 18.4% 3.1% ↑ 0.8 ppts
Revenue and Gross MarginRevenue and Gross MarginRevenue and Gross MarginRevenue and Gross Margin
----Steel and Diversified BusinessSteel and Diversified BusinessSteel and Diversified BusinessSteel and Diversified Business
Unit: Unit: Unit: Unit:
billion RMBbillion RMBbillion RMBbillion RMB
RevenueRevenueRevenueRevenue YoYYoYYoYYoY Gross Gross Gross Gross
Margin Margin Margin Margin
YoYYoYYoYYoY
EEEE----commercecommercecommercecommerce 7.7 ↑ 27.1% 0.02% ↓ 0.4 ppts
ChemicalsChemicalsChemicalsChemicals 3.9 ↓ 21.7% 6.3% ↓ 2.6 ppts
ITITITIT 1.6 ↑ 0.2% 27.8% ↓ 3.0 ppts
FinanceFinanceFinanceFinance 0.3 ↑ 5.9% 53.2% ↑ 0.2 ppts
64.789.3
51.472.8
steel making distribution1H14 1H15
6.15.0
1.60.3
7.7
3.9
1.60.3
E-commerce chemicals IT finance1H14 1H15
Alert of 1Alert of 1Alert of 1Alert of 1----3Q Results3Q Results3Q Results3Q Results
The Company enjoyed over RMB 10bnprofit from offshore financing during the past 10 years, benefiting from RMB appreciation and lower financing cost.
RMB depreciated sharply by over 3% in 2 days in August, the Company decided to hedge the offshore foreign debt exposure and thus incur an estimated FX loss of RMB 2bn in 3Q.
Alert:1-3Q net profit is expected to decline 50%-60% YoY
6.16.26.36.4
1月 2月 3月 4月 5月 6月 7月 8月
USD against RMB trend in 2015
Jan Feb Mar Apr May Jun Jul Aug
1
2
1H15 Results
Industry DynamicsIndustry DynamicsIndustry DynamicsIndustry Dynamics
Contents
GDP CPI
• GDP up 7.0% in 1H, economy restructuring is at the critical stage.
• GDP growth maintained 7.0% for 2 consecutive quarters, showing a stabilized trend.
• CPI up 1.3% in 1H. Pork price rose fast while overall price level was stable, much lower than the annual target of 3%.
• CPI growth has been lower than 2% in the past 11 months, leaving room for further monetary policy change.
Macro EconomyMacro EconomyMacro EconomyMacro Economy
Data source: National Bureau of Statistics
9.5%
7.7% 7.7% 7.4%7.0%
2011 2012 2013 2014 1H15
5.4%
2.6% 2.6%2.0%
1.3%
2011 2012 2013 2014 1H15
Unit: million tons 1H151H151H151H15 YoYYoYYoYYoY
Output 410 ↓ 1.3%
Net export 49 ↑ 34.9%
Apparent consumption 361 ↓ 4.7%
• Crude steel output was 410mn tons in 1H, down 1.3% YoY, first decrease in the past 20 years.• Apparent consumption remained negative growth, oversupplied situation was still serious. Large increase in export absorbed excess output.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----SupplySupplySupplySupply
Crude Steel Output and Apparent Consumption
Data source: National Bureau of Statistics, Customs Statistics
816 823
410
765 739
361
2013 2014 1H15Output Apparent Consumption
-2.0%
-2.1%
-5.9%
• Steel industry FAI was RMB 229.4bn in 1H, down 12.3% YoY.• Investment fell rapidly under a weakening fundamental.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----SupplySupplySupplySupply
Steel Industry FAIUnit: billion RMB
Data source: Wind1Q2015
506 479
229
-2.1%-5.9%
-12.3%
2013 2014 1H15Steel Industry FAI Ytd,YoY
• In 1H, China exported 52.4mn tons(+27.8% YoY); imported 6.65mn tons(-8.2% YoY). Net export were 45.75mn tons, up 35.5% YoY.
• Export growth slowed down but still high.
• Domestic steel price hit new record low, causing a lower export price. In 1H, average export price was USD 621/ton, down 21.7 % YoY.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis----Import & ExportImport & ExportImport & ExportImport & Export
Net Export of Steel ProductsUnit: million tons
Net export YoYData source: Custom Statistics48.3
79.3
45.8
14.7%
64.4%
35.5%
2013 2014 1H15Net export YoY
FAIFAIFAIFAI
20.6%19.6%
15.7%
• FAI totaled RMB 24 trillion in 1H, up 11.4% YoY, growth continued to slow down.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(infrastructure)Demand(infrastructure)Demand(infrastructure)Demand(infrastructure)
Unit: trillion RMB
Data source: Wind
4450
2419.6% 15.7% 11.4%
2013 2014 1H15
Investment New Start and Sales Growth
• Investment and new start grew at 4.3% and -16.8% YoY respectively in 1H, growth rate in downward trend.
• As the stock market risk released, real estate sales growth rebounded to 6.1% in 1H.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(real estate)Demand(real estate)Demand(real estate)Demand(real estate)
Unit: trillion RMB
Data source: Wind
8.6 9.5
5.319.8%
10.5%4.3%
2013 2014 1H15
13.5%
-10.7%-16.8%
17.3%
-7.6%
6.1%
2013 2014 1H15New start Sales
Output Sales
• Output and sales were 12.10, 11.85mn units, up 2.6% and 1.4% YoY respectively in 1H. Auto industry was under great pressure, growth slowed down.
• Passenger car sales up 4.8% YoY, outperformed commercial car(down 14.4% YoY).
• We expect 2015 auto sales to grow at 2%, considering macro economy and auto makers’ destocking pressure.
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(auto)Demand(auto)Demand(auto)Demand(auto)
Unit: million units Unit: million units
Data source: CAAM
22.12 23.72
12.10 14.8%
7.3%2.6%
2013 2014 1H15
21.98 23.49
11.85 13.9%
6.9%
1.4%
2013 2014 1H15
Washing Machine Refrigerator
Air-conditioner TV
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(home appliances)Demand(home appliances)Demand(home appliances)Demand(home appliances)Unit: million units Unit: million units
Unit: million units Unit: million units
Data source: Wind• Washing machine outperformed in 1H.• Consumption upgrade will continue, smart appliances is expected to boost new demand.• Expected growth rate of white goods in 2015: 5% for washing machine and air-conditioner,
0% for refrigerator.
72.0 71.1 34.68.2% -3.3% 4.3%2013 2014 1H1593.4 88.0 49.310.6% -1.0% 0%2013 2014 1H15
143.3 144.6 90.011.6% 11.5% 2.8%2013 2014 1H15140.3 141.3 70.6-0.2%
6.2% 2.7%2013 2014 1H15
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(machinery)Demand(machinery)Demand(machinery)Demand(machinery)
Value Added Growth, YoY
Data source: National Bureau of Statistics
• Transportation equipment’s growth fell from a high position, other sub-sectors remained low.
• Future trend is not optimistic due to excess capacity and depressed related industries.
• Growth downside is expected limited in 2H15, industry average 6% for the full year.
-5%0%5%10%15%20%25%30%
2014 May-14 Aug-14 Nov-14 Mar-15 Jun-15
General EquipmentSpecial EquipmentElectrical equipmentTransportation Equipment
Demand and Supply AnalysisDemand and Supply AnalysisDemand and Supply AnalysisDemand and Supply Analysis
----Demand(ship building)Demand(ship building)Demand(ship building)Demand(ship building)
CompletionUnit: million tonnages
Data source: CANSI
• Completion, new order and carrying order were 18.5(+6.3% YoY), 11.2(-72.6% YoY) and 138(-9.2% YoY)mn tonnages respectively in 1H.
• Completion growth declined, new orders and carrying orders decreased every month.
• Ship making industry was still weak due to the sluggish shipping market and marine engineering market caused by low oil price.
123456
2013 2014 2015
Steel InventorySteel InventorySteel InventorySteel Inventory
Social Inventory Steel Mills InventoryUnit: million tons Unit: million tons
Data source: Mysteel Data source: CISA• Overall inventory level is lower in 2015, 11mn tons by 14 Aug, down 2% MoM and down 14% YoY.
• As transferred from social inventory, steel mills inventory was in upward trend, while fell back since late June.
• Steel mills inventory was up 7% YoY and up 14% Ytd in late July.
0510152025
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15Total Long Products Flat Products 12141618
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15
Raw MaterialRaw MaterialRaw MaterialRaw Material
Platts(62% Fe) Coke and Scrap PriceUnit: RMB/ton
Data source: Wind• Imported iron ore 450mn tons in 1H, down 0.9% YoY. Average import price USD 63.8/ton, down 46% YoY.
• Entering 2015, Platts was still in downward trend and dropped to historical low USD 44.5/ton on 8 July. Platts was USD 56.75/ton by 19 Aug, down 21% Ytd and down 39% YoY.
• Iron ore price is expected USD 50-60/ton in 2015.• Coke price is still in downward trend and expected to continue in 2015.
44.5406080100120140160
1月 2月 4月 5月 7月 8月 10月 11月2013 2014 2015Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 50010001500200025003000
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15Coke Scrap
Iron Ore InventoryIron Ore InventoryIron Ore InventoryIron Ore Inventory
Port Inventory Unit: million tons
Data source: Mysteel
• Port inventory declined slowly in 1H, but remained high position.
• 81.7mn tons by 14 Aug, down 19% Ytd and down 26% YoY.02040
6080100120
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15Total Australia Brazil India
Steel MarketSteel MarketSteel MarketSteel Market
HRC, CRC and Rebar Price CRC Products PriceUnit: RMB/ton Unit: RMB/ton
Data source: Wind• Due to weak downstream demand and losing support from raw material, steel price has decreased to the 20 years low.
• Industry’s profit decreased significantly in 1H. According to CISA, median and large sized steel mills’ total profit was RMB 1.6bn, down 78% YoY, about 42.6% of which lost money. The industry lost RMB 21.7bn in main business, down RMB 16.8bn YoY.
• Main business loss is unlikely reversed in 2H, industry is still expected quite weak.
180023002800330038004300
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15HRC 3.0 CRC 1.0 Rebar HRB400 250035004500550065007500
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15CRC 1.0 Galvanized 1.0 Prepainted 0.476 Silicon 600