Rare Metals Industry Sustained Nearly All-round Loss, Base Metals Enterprises Look For Way Out In Cramped Space



Rare Metals Industry Sustained Nearly All-round Loss, Base Metals Enterprises Look For Way Out In Cramped Space

Demand slackened with no recovery in sight, both volume and price recorded historical new low, the nonferrous metals industry experienced insufferable pain in the past one year.

According to incomplete statistics, up till now, among 103 nonferrous metals listed companies classified by Shenwan Securities, 29 have formally published annual reports, in which 4 sustained loss, 25 earned profit; 60 released performance forecast or bulletin, 42 forecast profit-earning, accounting for two thirds. Although at the present stage the ratio between profit-earning and loss seemed to be optimistic, upon closer scrutiny, the data can hardly cover up enterprises’ weak operation condition, over half profit-earning enterprises experienced considerably diminished profit, their income from main business dropped rather than increased.

Among enterprises which have published annual reports, Zijin Mining ranked top with a profit of 1.343 billion yuan, but net profit shrank by half than last year; the second-ranking China Molybdenum Co., Ltd also recorded net profit decline of over 60%. Judging from the industry, rare metals industry almost sustained industry-wide loss, which forced enterprises to jointly cut production; base metals enterprises are also seeking survival in cramped space, and looked for way out.

In 2015, the supply and demand contradiction of the rare metals industry continued to intensify, prices fell to historical bottom.

Among 19 rare metals enterprises which have published annual report info, 11 recorded loss. Wherein, 3 tungsten enterprises all sustained loss, Xiamen Tungsten lost 536 million yuan; rare earth industry also sustained huge loss, China Minmetals Rare Earth forecast loss of 460-385 million yuan.

Decline in both volume and price under capacity surplus condition constitutes the main reason of loss for listed companies. On March 26, Rising Nonferrous Metals published annual report, saying its net profit dropped significantly to -312 million yuan. According to the annual report, due to serious inversion between sales price and cost, last year the company implemented sales control for price stabilization for tungsten concentrate, resulting 92.41% drop of sales income on Y-o-Y basis; sales quantity of rare earth ore also decreased by 80.49% than last year, the main reason is tumbling market prices of products.

Enterprises similarly trapped in loss include Oriental Zirconium, whose performance bulletin showed last year it lost 363 million yuan in profit, down sharply by 5249.09% on Y-o-Y basis, operating income shrank by nearly 35% on Y-o-Y basis. The company explained the main reason is reduction in sales income of titanium ore, along with continual decline in the prices of other products, which resulted in sharp fall in the gross profit of the company’s products, plus provision for impairment of some assets.

Annual report of Huayou Cobalt showed its net profit sustained a loss of 254 billion yuan, down by 279% than the same period last year. Liu Lei, cobalt industry analyst of Antaike, said: “The main reason is still supply surplus of raw materials last year, excessive raw material import, the whole industry basically maintained little profit or sustained loss.”

Widespread loss across the entire industry forced enterprises to voluntarily shut down capacity. Since last year, news about joint production cut and collection & storage of rare metals frequently cropped up. On March 25, the first Nationwide Gallium Industry Alliance which includes 6 major Gallium domestic enterprises announced to gradually cut production and even closedown since that day. On March 17, China Tungsten Industry Association proposed to reduce tungsten concentrate output by 15% on Y-o-Y basis in 2016. On February 29, the State Reserve Bureau’s bidding transacted 2800 tonnes of metal cobalt, coupled with 2250 tonnes collected last year, the collection quantity of metal cobalt has topped 5000 tonnes.

Amid widespread bad news, only lithium enterprises alone recorded outstanding performance. Benefiting from all-round brisk sales of new energy vehicles last year, lithium ore bucked the trend and rose in both quantity and price, Talison Lithium and Ganfeng Lithium received heightened profit, the former’s share price even doubled within one year. Nevertheless, the real profit-earning potential will be further released this year, Talison Lithium’s Q1 report forecast Y-oY profit rose by 800% to 273 million-288 million yuan, which exceeded the company’s whole year net profit last year.

In the cold winter of the industry, base metals enterprises also faced huge operation pressure, their main business showed sluggish growth. Viewed by industry, among the 14 copper enterprises summarized by Shenwan Securities, 3 forecast loss, 7 enterprises recorded significant shrinking of profit. Wherein, Tongling Nonferrous (2.81,-0.01,-0.35%) is expected to record as loss between 620-670 million yuan, Western Resources expects to record a loss between 225 and 275 million yuan.

On March 23, Jiangxi Copper published annual report, saying the company’s production and sales of copper cathode both dropped by about 1.5%, income from all copper products fell sharply. Nevertheless, the company still maintained 685 million yuan of profit, “Jiangxi Copper’s profit-earning advantage still lies in self-owned mine, last year the exploitation cost of open pit mine fell considerably, for a long time the company consistently gave priority to resource control, this year if there are chances we still want to acquire more good resources.” Said relevant personnel of Jiangxi Copper’s Board of Directors Office.

“For the whole industry, last year the main profit-earning space was still copper smelting, the whole year’s long-term order processing fee was at USD107 per tonne, which is relatively high in the history, therefore the situation is not so bad when compared to other industries.” The above-mentioned insiders said.

Aluminum enterprises are still struggling on the break-even line. Chinalco, which lost 17 billion yuan in 2014, finally gained profit of 424 million yuan despite difficulty last year, but the company’s operating income still sustained loss of 3.831 billion yuan, the profit mainly came from non-operating income such as sales of the company’s fixed and intangible assets.

Loss-suffering aluminum enterprises also include Zhongfu Industrial, its annual report showed net profit is -1.119 billion yuan, asset liability ratio reached 77.2%; Yinbang Clad Material Co., Ltd’s performance bulletin showed the enterprise recorded loss last year, total profit amount was -195 million yuan.

Other base metals enterprises are also struggling for survival. Ji En Nickel Industry has recorded loss for two consecutive years, its forecast indicated last year its net profit was between -2.8 and -2.5 billion yuan, showing growing loss compared with last year’s loss of 607 million yuan.

Confronting decrease in income from main business which was originally intended as the pillar of profit, many enterprises are also seeking new growth points. Minfa Aluminum said in its annual report that, in 2016 it would develop toward energy saving, environmental protection, and high-end application product directions, it planned to seek private placement for constructing annual production of 400,000 sqm energy-saving environmental friendly high-performance aluminum alloy construction template project.