Baosteel states RMB depreciation causes financial costs to rise, and exports to the US to decrease in the second half of the year
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Published Time:
2020-07-10
Regarding market concerns such as the current Sino-US trade friction and the depreciation of the RMB, senior executives of Baosteel Group (600019.SS), China's largest steel company, responded on Tuesday that the depreciation of the exchange rate has increased the company's financial expenses, and the company has increased the hedging ratio of its foreign exchange risk exposure. It is expected that the company's export volume will remain generally stable in the second half of the year, but exports to the United States will decrease.
Regarding market concerns such as the current Sino-US trade friction and the depreciation of the RMB exchange rate, senior management of Baosteel Group, China's largest steel company (600019.SS), responded on Tuesday that the exchange rate depreciation has increased the company's financial expenses, and the company has increased the proportion of its foreign exchange risk exposure hedging. It is expected that the company's export volume will remain generally stable in the second half of the year, but exports to the United States will decrease.
In response to investor questions about the Zhanjiang No. 3 blast furnace project, General Manager Zou Jixin said at the online performance meeting, "We are currently progressing the relevant work as planned, and the project is expected to be completed and put into operation in 2021."
Baosteel's board secretary, Wang Juan, added that the cash flow generated by the Zhanjiang base can currently cover the investment in the No. 3 blast furnace, and this investment will not affect the company's net profit and dividend policy in the second half of this year.
Baosteel announced in a late Monday announcement that it plans to invest 18.9 billion yuan to build a third blast furnace system at its Zhanjiang base, further expanding its production capacity. The project will build upon the existing infrastructure of the Zhanjiang Steel No. 1 and No. 2 blast furnace systems, appropriately expanding equipment such as raw material wharves, coke ovens, blast furnaces, and converters to produce low-cost, high-quality steel billets. This project will also construct one ultra-high-strength steel production unit and one cold rolling unit.
Regarding recent exchange rate fluctuations, Wang Juan said that since mid-June, the RMB exchange rate has experienced a rapid and significant depreciation. The company increased its US dollar financing during the period of tight RMB liquidity in the second half of last year and the first half of this year. During the RMB depreciation, the comprehensive financing cost advantage of US dollar financing is no longer present, and it has reached parity with the market-based RMB financing cost rate, resulting in an increase in the company's financial expenses.
"Currently, the company has locked in the exchange rate risk for all US dollar financing, and the overall comprehensive financing cost rate is controlled within 10% below the central bank's benchmark interest rate." she said.
Baosteel's CFO, Wu Kunzong, also pointed out that recent exchange rate fluctuations have been significant, and the company is dynamically adjusting its exchange rate risk hedging strategy and increasing the proportion of foreign exchange risk exposure hedging.
He also pointed out that the company's production and sales scale will remain stable in the second half of the year, but in the face of increased environmental protection investment, concentrated annual repairs, exchange rate changes, and rising material procurement prices, the company will face many challenges and pressures in maintaining the stable operation of manufacturing and the sustainability of cost reduction.
Baosteel disclosed its interim report on Monday evening, showing a net profit of 10.009 billion RMB in the first half of the year, a year-on-year increase of 62.23%.
Baosteel shares closed at 8.25 yuan on Tuesday morning, up 0.73%.
