“One can imagine the whole sector’s difficulties now,” Helen Lau, an analyst at Argonaut Securities Asia in Hong Kong, said on Thursday. The situation may get worse as mills that can’t cut costs to match weaker revenue find their margins squeezed further, Lau said.
Baoshan Steel reported a net loss of 920.5 million yuan ($145 million) in the three months to September compared with profit of 1.86 billion yuan a year ago, according to a statement late Wednesday. Sales fell 10 percent, and the Shanghai-based company said full-year profit could fall between 50 and 100 percent. In 2014, it made 5.79 billion yuan.
China’s steelmakers, which together account for half global production, are battling contracting demand, slumping prices and overcapacity spurred by the nation’s slowdown. A glut of steel is getting worse as mills haven’t reduced output fast enough, according to the China Iron & Steel Association. Baoshan Steel said the surprise devaluation of the yuan in August -- a move by policy makers to bolster growth -- had led to a one-time foreign-exchange loss as the company switched to yuan debt, contributing to the quarter’s loss.
Shares Drop
Shares in Baoshan Steel fell 0.9 percent to 5.79 yuan in Shanghai at the 11:30 a.m. break compared with a 0.1 percent gain in the Shanghai Composite Index. The stock has lost 17 percent this year after a 71 percent rally in 2014.
Baoshan Steel’s result followed Hebei Iron & Steel Co., China’s largest producer, which said third-quarter profit shrank after sales fell 25 percent. Elsewhere, Maanshan Iron and Steel Co. reported a net loss of 1.34 billion yuan from a profit a year ago. Angang Steel Co. warned earlier this month that it expects to swing to a loss in the third quarter. Last week, Sinosteel Co., a state-owned steel trader, failed to pay interest due on bonds.
Banks are tightening lending and losses are stacking up, Zhu Jimin, deputy head of the China Iron and Steel Association said on Wednesday. Medium- and large-sized mills incurred losses of 28.1 billion yuan in the first nine months of this year, according to CISA. Steel demand in China shrank 8.7 percent in September on-year, it said.
The chairman of Baoshan Steel’s parent said last week that the industry’s losses nationwide totaled 18 billion yuan in the first eight months of the year compared with a profit of 14 billion yuan a year ago. China’s steel output could eventually contract by a fifth, Xu Lejiang told reporters in Shanghai.
