Steelmakers registered losses in 2011

Updated: 2012-02-01 08:58

By Du Juan (China Daily)

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BEIJING - China's steelmakers suffered losses in 2011 because of rising costs and shrinking demand. That will result in weak performances following the Chinese Lunar New Year and the situation will continue for several months until the downstream market grows.

Angang Steel Co, the largest Hong Kong-listed Chinese steelmaker, had a net loss of 2.15 billion yuan ($340 million), according to estimates in the company's statement to the Hong Kong stock exchange on Monday. Angang, situated in Liaoning province in Northeast China, made a profit of 2.04 billion yuan in 2010.

The company said the shortfall came mainly from falling steel prices and the high price of raw materials in the fourth quarter. According to the company's report, it had a net profit of 239 million yuan in the third quarter.

The company said the price hikes in fuel and raw materials are higher than the price at which it can sell steel and an equipment overhaul also contributed to the loss.

"Angang's high-end products are not competitive enough in the market, which should be the main reason for their loss," said Zhang Lin, a senior analyst at the Beijing Lange Steel Information Research Center. "In fact, they have advantages in terms of raw materials, compared with the other steel producers, because they own some iron-ore mines in the region which should help them to save on costs."

Zhang said increased management costs could also be another reason for the loss. However, shrinking demand is the key reason for the decreases in profits and losses among most domestic steelmakers.

Angang fell 11.02 percent to close at HK$5.57 (71 US cents) in Hong Kong trading on Tuesday.

The State-owned Guangdong Shaogang Songshan Iron and Steel Co Ltd, based in Guangdong province and listed on the Shenzhen Stock Exchange, estimated it had a loss of 1.17 billion yuan in 2011, compared with a profit of 20.95 million yuan in 2010. The reason for the loss was similar to Angang's, said the company.

Shougang Co Ltd, a listed arm of Shougang Group, had an estimated profit of 13 million yuan in 2011, a decline of 96 percent year-on-year.

Holidays, including the Chinese Spring Festival, led to weak demand in the Asian market because the majority of industrial production was halted during the festival. An economic slowdown in some Asian countries has also affected demand for resources such as iron ore, according to analysis from China Galaxy Securities Co Ltd.

China Galaxy said that steel demand will not rebound quickly over the short term after the holiday because the Spring Festival fell early this year. The cold weather, coupled with rain and snow, will not provide suitable circumstances for building, construction and manufacturing.

Moreover, major steel mills continued equipment checks in January, which will also result in lower production.

However, China Galaxy said steelmakers' profits will rise in the first quarter as the price of raw materials falls and the price at which they can sell steel becomes more stable.

On Jan 16, the China Iron and Steel Association said that although demand fell in the second half of 2011, the stable domestic economy will be beneficial for the continued growth of steel demand. However, steel prices will not increase by any great amount because the market is over-supplied and that situation will not change over the short term.

The association also said that China's crude steel output will continue to fall in 2012 and competition within the industry is still fierce.