Shares of several Chinese steel companies tumbled yesterday, after they posted warnings on losses or profits slumps for 2011 due to high raw material costs and a weakened demand.
Angang Steel's shares fell by 10.86 percent in Hong Kong trading yesterday. The company said late Monday it expects a net loss of around 2.15 billion yuan ($342 million) for 2011, compared with a net profit of 2.04 billion yuan a year earlier.
The loss was due to an increase in raw material prices exceeding the increase in steel products prices, and certain furnaces have temporarily suspended production for repair and maintenance, the Liaoning-based company said.
"Actually Angang has competitive advantages in raw material costs over most of its domestic counterparts because it owns iron ore mines," Zhang Lin, an analyst at the Beijing Lange Steel Information Research Center, told the Global Times yesterday.
"The steel mill's loss was largely caused by weakening demand in the fourth quarter, as many construction sites in northern China suspended work in winter," she said.
Maanshan Iron & Steel Co also said Monday its net profit for last year might fall by more than 50 percent from 1.1 billion yuan in 2010, due to weakened demand for steel products as well as higher prices of fuel and iron ore. Its shares fell by 7.6 percent in Hong Kong trading yesterday.
As of yesterday, more than 10 domestic steel companies including SGIS Songshan Co and Beijing Shougang Co posted warnings of losses or profit slumps for 2011.
Analysts said high iron ore prices, a softened property market and overcapacity have weighed on the profitability of most steel companies.
The average price of China's imported iron ore stood at $163.84 per ton in 2011, up 28.13 percent year-on-year, customs data showed.
Zhang Jiabin, an analyst from the Beijing-based information provider umetal.com, expects the trend of price surges for iron ore are not likely to continue this year. "Iron ore prices will fluctuate more frequently, but in general will go down this year," he said.
But a weakening demand for steel products, which comes together with China's economic slowdown, will still be a concern.
"About 52 percent of steel products manufactured annually in China are used in the country's real estate and infrastructure sectors, and China's tightening in the property sector will continue to quench domestic appetite for steel," said Zhang from Lange.
It is believed that severe overcapacity and low self-sufficiency in iron ore and coking coal could result in Chinese steelmakers facing a prolonged period of close to trough-cycle margins, Goldman Sachs said in a research note yesterday.
