Delong Holdings back in black in Q2 on cheaper raw materials

Delong Holdings saw its gross profit increase by 149.3 million yuan ($24 million) on the year in the second quarter as a result of the “significant decrease” in raw materials prices during the period.

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This helped it swing back to a net profit for the three-month period.

Delong had a gross profit of 231 million yuan ($37.5 million), which compares with 81.7 million yuan ($13.2 million) over the same period last year.

It posted a net profit of 71.2 million yuan ($11.5 million) as a result, compared with a net loss of 14.3 million yuan ($2.3 million) last year, it said late on Tuesday August 12.

“The increase [in gross profit] was primarily due to the decrease in prices of raw materials, which significantly outpaced the decrease in average selling prices of products sold” in the second quarter this year, the Singapore Exchange-listed steel manufacturer and trader said in its results report.

Selling prices for hot rolled coil fell year-on-year as a result of the “continued weak operating environment and intense competition” in the Chinese steel industry, the company noted.

HRC shipments also dropped to 660,601 tonnes from 693,873 tonnes, while billet sales saw a small lift to 186,763 tonnes from 182,832 tonnes.

Total shipments decreased by 29,341 tonnes, or 3.3%, it said.

The lower sales volume and prices led to Delong reporting a 4.6% year-on-year decrease in revenues to 2.51 billion yuan ($408.6 million).

Despite the positive figures, Delong has disclosed a negative outlook for the next few months.

It noted the latest statistics from the China Iron & Steel Assn showing a 0.4% improvement in local steel demand for the first half of 2014, while gross domestic product moved up by 7.5% in the second quarter.

“However, the board is of the view that the near-term operating outlook will remain very challenging as slow demand and excess capacity continues to exert downward pressures on steel prices,” it said.

Delong’s operations are located in the Chinese province of Hebei, where it owns a 2.6-million-tpy integrated HRC plant in Xingtai city and holds an 80% stake in a 1.2-million-tpy billet mill in Laiyuan county.

It is also building a 600,000-tpy HRC plant in Thailand.