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China Steel Reports 4th Quarter Results
01/26/2009 - Discounted selling prices and historically high iron ore and coking coal prices result in a fourth quarter pre-tax loss of NTD$18.26 billion for China Steel Corp.
The impact of the global financial crisis has resulted in frozen demand, slumping product prices and withering trading volume across a wide range of industries. As a basic material, steel mills have been heavily impacted, in some cases shutting down or curtailing production, with many operating at lower utilization rates approaching 60 to 70%.
As a result of the difficult market conditions, China Steel Corp. elected to cut domestic first-quarter selling prices by 22.56% (NTD$7,058 per ton) in an effort to promote de-stocking of customer inventories and help push the domestic steel market back toward more normal operation. The company also offered a variety of rebates in accordance with actual delivered volume of Q4 of 2008. The lower revenues that resulted, exacerbated by historically high iron ore and coking coal prices, have resulted in a pre-tax loss of NTD$18.26 billion for 2008Q4, which significantly eroded China Steel’s operating results for the first three quarters of 2008.
China Steel’s full-year pre-tax earnings were NTD$30.25 billion. This total reflects accumulative pre-tax earnings of NTD$48.52 billion for the first three quarters and the fourth quarter pre-tax loss of NTD$18.26 billion. The fourth quarter sales volume, 1.99 million tonnes, reflects a 0.54 million tonne decrease from 2008Q3. The fourth quarter sales revenue of NTD$55.1 billion reflects a NTD$21.7 billion , decreased from 2008 Q3.
The company detailed a number of unfavorable factors that affected earnings, including:
- Rebates for the fourth quarter 2008 retroactive price cut, which translate to a NTD$8.8 billion decrease of sales revenue.
- Recognition of TD$5.9 billion of potential loss on purchase commitment for raw materials (an increase of sales cost).
- Recognition of NTD$11.1 billion of inventory loss (an increase of non-operating loss).
- Recognition of NTD$7.1 billion loss from equity investments (an increase of non-operating loss).
At the start of the financial crisis, China Steel froze all non-critical expenditures and restarted its “1020” cost saving scheme. The company said such efforts will help it to not only strengthen China Steel, but also allow it to deliver saving back to its customers and consolidate the relationship of its supply chains.
The company said it is confident that production and sales volumes will recover quarter by quarter through the year.
