Shougang Hierro Peru Reports Profit Decline in 2024 Amid Lower Iron Ore Prices
Shougang Hierro Peru (SHP), a leading iron ore producer in Peru, has posted a net profit of PEN 2.089 billion ($567.7 million) for the year 2024, marking a decline from PEN 2.337 billion in 2023. Despite an increase in sales volume, the company faced a significant drop in profits due to the fall in iron ore prices. This has raised concerns about the impact of global market fluctuations on the profitability of iron ore producers.
Decline in Profit Due to Lower Iron Ore Prices
Although Shougang Hierro Peru experienced a higher volume of sales in 2024, the company struggled with declining sales prices for its iron ore. The drop in market prices negatively affected the overall profitability, leading to a decrease in net profits for the year.
The company reported net sales of PEN 5.864 billion in 2024, reflecting a 6.2% decline compared to the previous year’s figures. This decline in sales is largely attributed to the lower iron ore prices, despite an increase in the quantity sold.
Volume Growth Does Not Offset Price Decline
In 2024, Shougang Hierro Peru managed to increase its iron ore sales volume to 19.843 million metric tons (mt), compared to 18.850 million metric tons in 2023. The 5.3% increase in sales volume could not offset the adverse effects of the falling iron ore prices, leading to a decline in profitability across several financial metrics.
Despite the increased volume, the drop in prices resulted in a 15.9% decrease in the company’s gross profit, which stood at PEN 2.883 billion in 2024. Similarly, operational profit also saw a decline of 17.7%, reaching PEN 2.601 billion.
Fourth Quarter Struggles: A Deeper Slide in Profitability
The company’s struggles became more apparent in the fourth quarter of 2024, where Shougang Hierro Peru posted a 44.4% decrease in net profit, which amounted to PEN 475 million. This steep decline was accompanied by a significant drop in both sales and profits across the board.
• Net sales for the fourth quarter fell by 18.4%, totaling PEN 1.343 billion.
• Gross profit also plummeted by 29.3%, reaching only PEN 679 million.
• Operational profit experienced a similar decline, dropping by 30.1%, also reaching PEN 679 million.
The sharp decrease in the fourth-quarter performance indicates a more challenging market environment toward the end of the year, possibly due to further declines in global iron ore prices, increasing competition, or other operational challenges faced by the company.
Factors Contributing to the Profit Decline
Several factors appear to have contributed to the profit decline experienced by Shougang Hierro Peru in 2024:
1. Iron Ore Price Volatility: The fluctuating global iron ore prices have significantly impacted the company’s ability to maintain its profit margins, despite an increase in sales volume.
2. Operational Costs: While the company was able to sell more iron ore, the potential increase in operational costs may have further squeezed margins.
3. Global Market Trends: The global iron ore market has faced volatility in recent years, with prices influenced by global supply and demand, geopolitical factors, and China’s steel production adjustments.
Exchange Rate Impact on Financials
Given that the financial results are reported in Peruvian Sol (PEN), it is important to consider the exchange rate impact on the company’s results. As of February 24, PEN 3.68 equals $1 USD, which can influence the final profit figures when considering international sales.
Looking Ahead: Future Prospects for Shougang Hierro Peru
The company’s performance in 2024 highlights the sensitivity of iron ore producers to fluctuations in commodity prices. Despite the increase in sales volume, Shougang Hierro Peru faces a challenging market outlook, as continued price declines may further erode profit margins in 2025.
The company’s future will largely depend on:
• Price stability in the global iron ore market.
• Cost management strategies to maintain profitability despite price pressures.
• Operational improvements and efficiency measures to mitigate the impact of falling prices.
In this volatile market, Shougang Hierro Peru will need to adapt its strategies and possibly look for new markets or value-added products to maintain its competitive edge.
Key Takeaways:
• Shougang Hierro Peru reported a net profit of PEN 2.089 billion ($567.7 million) in 2024, a decline from PEN 2.337 billion in 2023.
• Despite selling 19.843 million metric tons of iron ore (a 5.3% increase from 2023), the company’s profits were affected by lower iron ore prices.
• Net sales decreased by 6.2%, and gross profit dropped by 15.9% in 2024.
• In the fourth quarter of 2024, net profit declined by 44.4%, with sales falling by 18.4% and gross profit by 29.3%.
• The decline in profitability was attributed to lower sales prices despite increased sales volume, as well as global market challenges.
• The exchange rate, with PEN 3.68 to $1 USD, also impacted the financial results.
