China's Steel Mills See Widening Losses as Supply Exceeds Demand

  • Lower output seen as not enough to offset demand contraction
  • String of listed steel makers issue loss warnings on Friday

Steel mills in China, the world’s largest producer, are grappling with widening losses as demand contracts faster than they’re able to reduce output.

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 in an e-mailed statement Friday. They collectively made a profit of 22.6 billion yuan in the first half of 2015. China’s crude steel output fell last year for the first time since 1981, it said.

”Lower output is not enough to offset the decrease in demand as the market is still oversupplied,” according to the statement. ”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.”

Demand is weakening as policy makers seek to steer the economy away from investment toward consumption-led growth. The economy expanded 6.9 percent last year, the slowest pace since 1990, data showed. Steel demand will be in a downtrend for a "relatively long period of time" while producers are still struggling with overcapacity and oversupply, the association said.

Signs of corporate difficulties are mounting as at least six Chinese steel mills issued loss warnings on Friday. China’s fourth-biggest steel mill by production Angang Steel Co. said it expects to swing to a loss of about 4.38 billion yuan for 2015, citing falling prices and a squeeze on margins. It made a net profit of 928 million yuan in 2014. China’s fifth-largest mill Wuhan Iron & Steel Co. expects losses to reach 6.8 billion yuan for last year.

Maanshan Iron & Steel Co. also said on Friday it expected a net loss of 4.82 billion yuan for 2015, citing a significant drop in steel product prices, while Beijing Shougang Co. said its losses will be at least 800 million yuan.

— With assistance by Feiwen Rong

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