"However, as can be seen in the Steel Financial Bulletin, it was not as easy for the Asian and US producers," says Integer Research analyst, Andrea Valentini. "In the US, the economic momentum has slowed, triggered by the crisis in the US real estate market. The softer US economy meant that stocks have built up, particularly of flat steel sheet. Consequently margins for companies like Nucor and AK Steel have fallen. Margins had also been squeezed by imports and prices; however imports have recently dropped, leading to a healthier business environment. This has resulted in a stronger performance in the US steel market in Q2 2007."
Radbourne continues, "In China the cost pressure among some players, and pressure on prices, hit margins for many of the steel producers early in 2007. This was despite the continued strong demand. The only companies that have been able to sustain their profitability are those producing quality flat products, such as Angang, Tangshan and Shougang. They have been able to sustain their profit margins because strong economic performance in China. This has underpinned demand for flat steel products used in a range of consumer goods."
In Japan, Nippon Steel Corp. and JFE Holdings Inc have both been able to post strong quarterly profits margins, helped by higher steel prices. Nippon Steel, the world's second largest steel producer has benefitted from strong worldwide sales of Japanese cars, helping its pre-tax profit increase by 21% year-on-year to Yen148.7 billion (US$1.26 billion). JFE, sold nearly half its steel products to customers in South Korea, Thailand and China However, both Sumitomo Metal Industries Ltd. and Kobe Steel Ltd., which rely less on booming car sheet production than the bigger two rivals have seen their margins squeezed over the last few months.
"South Korea's POSCO announced a 55% increase in its quarterly net profits in Q2 2007, as it saw rising demand from car companies and shipbuilders," says Radbourne. "Arcelor Mittal also reported a strong performance. It saw a 50% increase year-on-year in net profits, based on its pro-forma 2006 results. However, it will be interesting to see how Arcelor Mittal performs, once we are able to look at the company on a like-for-like basis through next year. It will also be interesting to see, in future editions of the Financial Bulletin, whether the company has been able to gain from consolidation."
