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December, 6, 2016

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Steelmakers point to profit surge on rise in prices

Two of China's biggest steel mills said their net income jumped in the third quarter, in a further sign that this year's price rebound has eased troubles for the world's biggest producer.

HeSteel Co, the listed unit of China's top steelmaker, expects to post net income at the highest level since 2010 on gains in prices, according to a statement. Net income will be between 453.7 million yuan ($67 million) and 606 million yuan, from 150.5 million yuan a year earlier. Angang Steel Co, listed unit of the fourth-biggest mill, expects profit of about 677 million yuan, swinging from a loss of 1.03 billion yuan a year earlier.

"Steel prices in the past three months have been quite good," Angus Chan, analyst at Bocom International Holdings Co. Ltd, said by phone from Hong Kong. Profits at China's steelmakers could come under pressure in the fourth quarter from higher costs, he said.

Steelmakers in the nation that accounts for about half of world output have enjoyed a better year after stronger demand boosted prices and expanded profit margins. Benchmark steel rebar on the Shanghai Futures Exchange averaged the highest of any quarter since the first three months of 2015 in July-September. Global steel use will rise 0.5 percent this year, the World Steel Association said this week, reversing an April forecast for an 0.8 percent drop after China's market rebounded.

Hesteel's shares rose 0.3 percent to 3.09 yuan in Shanghai on Friday, while Angang was up 0.2 percent to 4.48 yuan.

Steel prices have rebounded since China returned from a week-long public holiday at the start of October. Stronger domestic demand is diverting steel away from export markets and fueling higher iron ore imports, Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd., said in an e-mailed note.

Hesteel said its nine-month net income will be between 862.7 million yuan and 1.01 billion yuan, up from 507.5 million yuan a year earlier. Angang expects net income to rise to about 977 million yuan for the nine months, from a net loss of 888 billion yuan a year earlier. Angang and Hesteel are due to report final third-quarter earnings on Oct 26, after Baoshan Iron & Steel Co, the No 2 producer, on Oct 24.

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