Baosteel Sinks after Profit Warning on Steel Prices, Dollar Debt

20 January 2016

Baoshan Iron & Steel Co.retreated in Shanghai after China’s second-biggest steelmaker warned that a slump in steel prices and foreign-exchange losses will push its 2015 net income down more than 80 percent.

The producer, also known as Baosteel, sank as much as 7.8 percent on Wednesday after saying that the collapse in steel prices hurt revenue, while the yuan’s slide generated losses on debt denominated in the dollar. Full-year net income plunged 83.4 percent to 961 million yuan ($152 million) as revenue fell 12.6 percent to 164.1 billion yuan, Baosteel said in a preliminary earnings statement to the exchange late on Tuesday.

China’s steelmakers, which account for half of global production, are on the ropes as local demand cools for the first time in a generation, product prices sink and the industry grapples with overcapacity. The country’s crude-steel output shrank last year for the first time since 1991, according to official data on Tuesday. Declines in the yuan this year as China’s economy slows have roiled financial markets, including commodities.

“Downstream demand remains in the doldrums and steel sales margins narrowed sharply,” Baosteel said in the statement. The depreciation of China’s currency against the dollar had created losses on short-term financing instruments, it said.

The company had a 1.2 billion yuan loss from switching all of its short-term dollar debt to domestic currency borrowing in the third quarter, after China’s devaluation on Aug. 11, according to a statement on Aug. 25 last year.

Baosteel shares were down 6.3 percent at 5.64 yuan at 1:07 p.m. local time, and are little-changed this year after retreating 20 percent in 2015. The company was the biggest producer in China in 2014, behind Hebei Iron & Steel Co. Ltd.