Chinese steelmakers warn of big 3Q losses
16 Oct 15 – Metals, Ferrous, Corporate
Three of China’s largest state-controlled steel companies have warned they will declare sharp losses in the third quarter.
Shenzhen-listed Angang Steel, the flagship of the Anshan Iron and Steel group, expects to make a 1.04bn yuan ($164mn) loss in July-September after it made a Yn346mn profit in the same period last year. Angang is projecting a loss of Yn888mn in the first nine months of this year, down from a Yn923mn profit a year earlier.
The company was hit by a steep decline in steel prices in the third quarter amid relatively stable prices of imported iron ore and coal. Angang will also book a Yn98mn foreign exchange loss after the government devalued the yuan in the quarter.
Fellow steelmaker Hunan Valin warned it will make a Yn0.75-1.15bn loss in July-September, after it made a Yn24mn profit a year earlier. It expects a 0.9-1.3bn loss in January-September, down from a Yn46mn profit in the year-earlier period.
Valin blamed record low steel prices and foreign exchange losses for its dismal projection. A key construction steel benchmark, the Tangshan billet price, fell to an eight-year low at Yn1,640/t on 28 September.
And Shenzhen-listed Beijing Shougang, the largest company in the Shougang group, said it is likely to make a Yn300-400mn loss in the third quarter after a profit of Yn1.43mn a year earlier. It expects to make a loss of Yn552.87-622.87mn in the January-September period, down from a Yn10.87mn profit a year earlier.
Chinese steel mills have been hit by a year-long decline in domestic demand, thanks in part to weakness in the real estate market. Construction steel products account for more than 50pc of steel consumption in China. And manufacturing sector demand has been hit by slower growth in the automobile and shipbuilding industries.
The seaborne iron ore price would have to fall to $40/t for steel mills to break even, according to industry estimates. But iron ore supply is likely to remain stable, meaning any fall in prices may be gradual and in small increments.
Steel mills are bracing for a difficult October-December, which is typically a slack period for sales as construction activity slows in the winter. Mills may have to make deep cuts to production and sharply reduce their costs to ride out the downturn.
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