China’s Baoshan outperforms Nippon Steel as Most-Valuable Producer

1 May 2015

Baoshan Iron & Steel Co., spurred by China’s stock-market rally and growing car market, is poised to overtake Japan’s Nippon Steel & Sumitomo Metal Corp. as the world’s largest steelmaker by market value.

Baoshan, supplier of half of China’s auto steel, had a market capitalization of $23.8 billion to Nippon Steel’s $25 billion on Thursday. The spread on Tuesday was only $52 million. Also tracked in the attached chart is South Korea’s Posco, which wrestled with the Japanese steelmaker for the crown from 2013 until last year.

Shares of Shanghai-based Baoshan more than doubled in local-currency terms since Oct. 30 as the benchmark Shanghai Composite Index rallied 86 percent. Nippon Steel’s stock rose 14 percent and Posco fell 18 percent in the same period.

“Baoshan has an edge over steelmakers in Japan where auto production won’t grow at a pace seen in China,” said Yoku Ihara, who runs Japan’s Growth & Value Stock Research. Baoshan is one of the few Chinese producers that can supply high-end sheets to automakers, making it the “best positioned among so many Chinese suppliers, most of which make construction steel,” he said.

The China Association of Automobile Manufacturers projects domestic vehicle sales to increase an average of 5 percent to 10 percent a year, with sales last year of 23.5 million units. Japan’s new-car sales rose 3.5 percent to 5.6 million units in 2014, data compiled by Bloomberg show.

Nippon Steel shares surged in late 2012 and caught Posco’s by value in early 2013 behind then-newly elected Prime Minister Shinzo Abe’s policies designed to weaken the yen and spur exports and the Japanese economy.

Uncertain Prices

JFE Holdings Inc., Nippon’s closest domestic rival, signaled last week the upturn in the domestic steel industry could flatten in the year ahead, forecasting profit in the year to March 31, 2016 will remain almost the same level as seen earlier this year. Nippon Steel refrained from giving its profit forecast amid uncertain prices.

Globally, much of the steel market has seen a glut develop as China’s slower economic growth cooled. Baoshan has stood out as investors bet on growth in the auto industry, Ihara said. Posco recently sold control of its specialty steel unit to a rival and offloaded a stake in its engineering unit to raise funds amid the rising competition.