Wuhan Steel expects steel demand to weaken in 2011

Mon Apr 25, 2011 3:08am GMT

SHANGHAI, April 25 (Reuters) - China's Wuhan Iron & Steel expects steel demand to weaken in 2011, further trimming profit margins for the country's steel sector, the company said in its 2010 annual report to the Shanghai Stock Exchange.

"Prices of iron ore, coking coal, electricity and transportation are poised to rise, further pushing up the production cost, while steel demand from downstream sectors will gradually simmer down," the company said on Monday.

China's steel sector will be squeezed by a disorderly rise in raw material prices as well as overcapacity this year with its profit margins far lower than the average of other sectors.

The company posted 12.5-percent growth in its net profit in 2010 from 2009, thanks to rising steel prices. It made a net profit of 1.7 billion yuan ($261.8 million) last year.

Wuhan Steel also added that the iron ore supply shortage will persist in the long run.

Its President Deng Qilin said in March that China would suffer a shortage of iron ore supply over the next 10 years as the country was still expanding its steel capacity [ID:nSGE72700C].

Wuhan Steel also said that its first-quarter net profit surged 111 percent to 608 million yuan.

Despite concerns over steel demand this year, Wuhan Steel is still planning to raise its crude steel output by about 11 percent to 18.05 million tonnes in 2011, after turning out 16.62 million tonnes last year.

Wuhan Steel Group, parent of Shanghai-listed Wuhan Steel, was ranked the world's fifth-biggest steel producer last year. It competes with Baosteel Group, which also targets the domestic auto sheet and electricy steel market.

For a factbox of the world's biggest steel producers, click: ($1 = 6.494 Chinese yuan) (Reporting by Ruby Lian and Jacqueline Wong, sourced Thomson Reuters)