With oil prices currently up thanks to a Kuwaiti strike, production surging in steel mills, and gains in residential prices in top tier cities, indexes rose in China. All sectors benefited despite a lack of major, company-specific news with the exception of Telecom: China Telecom, HK 728 down 1.418%; China Unicom, HK 762, down 1.913% & China Mobile, HK 941, down .5%. China Unicom took the sector down as it expected first quarter profit to tumble 85% yearly to RMB480 million. It blamed the loss on higher selling and costs. The three telecoms transferred their tower assets to a separate entity, state-owned China Tower, in October of 2015 with lease-back costs still under negotiation. Ownership after the October transfer was split:
|6.00%||China Reform Corp*|
*China Reform Corp. is a full subsidiary of State Owned Assets and Supervisory Committe and Administrations, SASAC
(Per Bloomberg, China Tower would then be pushing a private placement IPO in 2017 potentially worth $10 Billion US. )
China Eastern Airlines, HK 670, down 2.48% in Hong Kong, announced that its controlling shareholder would not sell the 700M shares following its lock-up expiration. “In view of the optimism on the long-term prospect of the company’s investment value, CEA Holding has undertaken that it will not dispose of their unlocked shares of the company within 24 months from 18 April 2016.” This would be better than the market perception, with the stock losing 21.5% in Hong Kong, 16.03% in Shanghai, SH 600115 over the last 12 months.
(China Eastern HK 670 Orange; SH 600115 Blue)
Steel News Irony – Conflicting Reports of Production Inside China & Out
Today’s report by the China Iron and Steel Association, CISA, showed that first quarter Chinese production of steel smashed all previous records. Maintaining the 70.65 million tons produced in March, would result in an annual production of 834 million tons. (Total China steel production for 2015 was reported at 803.8 million tons). This would mean about a 3.4% production increase annually.
Meanwhile, in an interview with the National Bureau of Statistics, NBS commissioner Ning Jizhe said the changes in China’s economic trend in the first quarter of 2016 had shown its reform efficiency. As to trimming capacity, he said iron and steel and coal showed negative growth, with crude steel production dropping 3.2% yearly, while crude coal production dropped 5.3%.
Regardless of whether overall Chinese steel production has increased or decreased, the CISA reports show that steel exports have definitely increased, despite China’s recent disparagement through PRC mouthpiece Xinhua, of Western threats as a lame and lazy excuse for protectionism. (Not content with deriding the West, the same edition chastised India for promoting anti-dumping and urged it to honor WTO rules .) While Xinhua stated that steel production declined by 90 million tons over the past 3 years, the CISA reported that China’s steel exports jumped 30 percent to 9.98 million tonnes in March from a year ago despite a slew of anti-dumping measures globally.
The over-capacity and export growth was noted in the annual report by steel giant Arcelor Mittal, MT NYX, which stated that for 2015, China exported 112 million tons of steel, up 18 million tons from the year before. It indicated that the exports were done to offset the 4.5% decline in Chinese consumption. Despite the increase, Arcelor reported that the CISA assumed that the exports were being sold below cost, as large and medium sized mills lost RMB 53 billion ($8.6 billion) from January through November 2015), negatively impacting prices and therefore margins in many regions.