Hebei Iron Seeks Profit Turnaround Amid Company Clean-Up

Dec 16, 2013 2:24 am ET

(Updates with share price in fifth paragraph.)

Dec. 16 (Bloomberg) -- Hebei Iron & Steel Group, China’s biggest steelmaker, is aiming to return to profit in 2015 as it seeks to control costs and eradicate wasteful usage of the company’s resources, according to its new chairman.

“Some subsidiaries are already having difficulties in surviving, even having to completely rely on loans,” according to a Dec. 9 posting on the company’s website, which cited Chairman Yu Yong. “Some have become a gold diggers’ paradise, with large amounts of cash, resources, and profit eaten away.”

Yu was appointed chairman of the state-run company by the Hebei provincial government, replacing Wang Yifang, according to a statement on the group’s website, citing a Dec. 9 meeting with Deputy Governor Zhang Jiehui. Hebei Iron tumbled to a loss of 1.2 billion yuan ($198 million) in 2012 from a profit of 1.3 billion in 2011, according to data compiled by Bloomberg.

The company’s problems have existed for a long time and the resulting losses are “shocking and very terrifying,” Yu said. China’s political leadership has pledged to eradicate graft and boost the role of markets, even as it endorsed state dominance of the economy. It has also vowed to cut excess capacity in basic industries including steelmaking.

Hebei Iron’s Shenzhen-listed unit fell 2.4 percent to 2 yuan at the close of trading today, bringing this year’s decline to 25 percent. Its net profit for the first nine months of this year is expected to fall as much as 90 percent due to low steel product prices, it said in a Oct. 14 statement.

Wang resigned because of “work changes,” according to a Dec. 10 statement by the company’s listed unit to the Shenzhen Stock Exchange.

Departments must focus on cutting labor costs, Yu said, and the company can bring down production costs by at least 20 percent if it controls unnecessary spending.

--Editor: Jason Rogers