Angang Steel Sinks After Warning of Loss as Glut Savages Margins

1 February 2016

Angang Steel Co.’s A shares dropped on Monday after China’s fourth-largest producer said it would swing to a loss in 2015, adding to signs that mills in the world’s biggest supplier are struggling against sinking prices and demand.

The steelmaker’s stock in Shenzhen retreated as much as 5.1 percent to 3.88 yuan, the lowest price since October 2014, and traded at 3.92 yuan at 10:58 a.m. local time. The shares have sunk 18 percent so far in 2016.

Steel demand in China is weakening for the first time in a generation as policy makers seek to steer the economy away from investment toward consumption-led growth. At least six Chinese mills issued warnings of losses on Friday, including Angang. Medium- and large-sized mills that are members of the China Iron & Steel Association swung to a total loss of 64.5 billion yuan ($9.8 billion) last year, the group said separately on Friday.

‘Not Enough’

“Lower output is not enough to offset the decrease in demand as the market is still oversupplied,” Angang said in a statement on Friday that was released after the close of trade. The company expects a loss of about 4.38 billion yuan, it said. It made a net profit of 928 million yuan in 2014.

Signs of corporate difficulties among local steelmakers are mounting as demand drops faster than mills cut output. Data Monday showed a further contraction in manufacturing in Asia’s top economy as China’s official factory gauge signaled conditions deteriorated for a record sixth month in January.

“The steel sector is faced with tight cash flow and difficulty in operation as steel prices reached the lowest on record while losses at mills widened,” Angang said.

Among other warnings on Friday, Wuhan Iron & Steel Co., China’s fifth-largest mill, said that it expected a loss of 6.8 billion yuan while Maanshan Iron & Steel Co. said it expected a net loss of 4.82 billion yuan for 2015. The mainland-listed shares of both companies dropped on Monday.