Credit Suisse and Deutsche Bank analysts said that weak end demand and unfavorable industry conditions would continue to weigh on China Steel Corporation's profitability outlook this quarter, after the Taiwanese mill reported its first quarterly loss for the fourth quarter in more than two years.

Credit Suisse analysts led by Ms Sidney Yeh said in a report that "While foreseeing unit profit recovery in the first quarter of 2012 on cheaper feedstock, we believe the recovery pace is slow on weak end demand."

Deutsche analysts Mr James Kan and Mr Yvonne Tsai said in a separate report that "The demand slowdown and unfavorable industry demand supply balance should continue to cap steel profitability upside."

CSC, Taiwan's largest integrated steelmaker, reported a pretax loss of TWD 2.42 billion in the fourth quarter on weak demand and falling prices.

The fourth quarter pretax loss represents the first quarterly loss since the first quarter of 2009, when the Greater Kaohsiung based company posted a pretax loss of TWD 9.57 billion. The result also compares with a pretax profit of TWD 5.4 billion in the third quarter and TWD 6.14 billion in pretax profit the firm reported a year earlier.

For the whole of 2011, CSC said its pretax profit totaled TWD 20.29 billion, although that was still 54% lower than the TWD 44.1 billion it made in 2010. For the full year, revenue totaled TWD 240.38 billion, up by 0.5% from TWD 239.19 billion in 2010. Based on the 15.05 billion issued shares, last year's pretax profit translated into earnings per share of TWD 1.35.

CSC said the fourth quarter pretax loss reflected the impact of weak global demand and the lackluster world economy. The firm incurred a price rebate of TWD 2 billion for domestic downstream customers after it cut the price of steel products by an average of 7.08% for this month's and next month's contracts.

CSC said in the statement that an inventory related write down of TWD 2.9 billion last month and a TWD 400 million loss in equity investment also contributed to its poor result for the quarter.

Looking ahead, CSC said the steel market is expected to recover gradually this quarter given improvements in the global economy. It added that "Steel prices in Europe and the US and export prices from Asian mills have bottomed out recently, while some downstream industries have resumed taking new orders from overseas clients."

Mr Kan and Mr Tsai wrote in the report that "Steel prices could see a temporary restocking rally after the Chinese New Year. However, we believe the rally, if any, will not last long and steel prices should soften again because of restocking activities due to weak macro/industry fundamentals."

(Sourced from www.taipeitimes.com)