Angang Warns of First-Quarter Loss as China Steel Demand Shrinks

  • Company said last month that industry had entered new Ice Age
  • China faces immense challenges in plans to cut capacity: Fitch

Angang Steel Co., China’s fourth-largest producer, said it expects to report a net loss in the first quarter as weak steel prices continue to squeeze profit margins.

The company sees a loss of about 615 million yuan ($95 million) for the three months ended March 31, compared with 19 million yuan of net income a year earlier, according to a Shenzhen stock exchange filing Thursday. The producer reported a net loss of 4.59 billion yuan for the whole of 2015.

Steel demand and production in China, the biggest supplier, are shrinking as the country expands at the slowest pace in a generation and policy makers steer the economy to a growth model based on consumption rather than investment. Angang warned last month the industry had entered a new Ice Age as mills face overcapacity and rising competition that threaten their survival.

“Although we’ve adopted many measures to lower costs while boosting efficiency, it’s not enough to make up for the losses caused by falling steel prices,” the company said in the statement.

Steel and iron ore prices have rebounded this year, with hot-rolled coil futures in Shanghai climbing about 30 percent since the start of January and iron ore in the port of Qingdao surging 36 percent. Ian Roper, a director in the commodities research division of Macquarie Group Ltd., said in an interview last month that the rally would fade as mills restart idled plants.

Huge Challenge

The Chinese government faces immense challenges in its plan to eliminate up to 150 million tons of capacity by the end of the decade, including significant job and financial losses, according to Fitch Ratings Inc. Rapid cuts are unlikely, which means prices will probably remain low and result in higher liquidity and default risks for steelmakers, Fitch said in a report received last week.

Angang shares fell 1.9 percent to close at 4.56 yuan in Chinese trading Thursday before the filing was released, the biggest decline in more than two weeks. The stock has plummeted 36 percent in the past 12 months.

— With assistance by Feiwen Rong

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