Angang gets bourse warning following losses

Angang Steel Co Ltd - the listed arm of Anshan Iron and Steel Group Corp - will carry an ST tag, a type of bourse warning, on the Shenzhen Stock Exchange starting Friday after posting losses for two years in a row.

Angang Steel, a Liaoning-based steel maker, reported a 4.16 billion yuan ($670 million) loss in 2012, compared with a 2.1 billion yuan loss in the previous year.

According to bourse regulations, the company will have to change its stock name to ST Angang starting on Friday as a warning to investors of its loss-making record.

In addition, it risks being delisted if it fails to return to profit this year, analysts said.

Angang is not alone in struggling with mounting losses.

Just a day before, Anhui-based Magang (Group) Holding Co Ltd reported a 3.86 billion yuan loss for the 2012 fiscal year.

Angang said that steel product prices slumped due to the domestic economic slowdown, overcapacity, rising costs and fierce competition.

Angang has made efforts to avoid the ST tag before, including swapping its loss-making subsidiary for profitable assets with parent Anshan Iron and Steel Group Corp, and extending the depreciation of assets such as buildings and machinery.

Ge Xin, an analyst from Beijing Lange Steel Information Research Center, said that the company's losses have a lot to do with its product line.

"Nine out of 10 steel products made by Angang are high value-added steel plate products, but their prices have slipped by more than 4,000 yuan per ton from the peak of 6,000 yuan per ton in 2008," said Ge.

"As the company's product line keeps expanding, its own iron ore mines are not enough to meet its production demands, and it's also slower than private steel makers in finding new iron ore resources," said Ge.

Angang was one of the first State companies established after 1949. However, its long history also means a huge burden in terms of pensions and rising labor costs, according to Qiu Yuecheng, an analyst from e-commerce platform 96369.net.

"Angang's labor costs are about 150 yuan per ton, while those of privately owned Shagang Group in Jiangsu province are merely 50 yuan per ton," Qiu said.

"However, Angang is still a competitive company with state-of-the-art techniques. And steel plate product prices started to pick up in December 2012," he added.

Meanwhile, Zeng Jiesheng, an analyst from steel industry consultancy Mysteel.com, expressed his concern about Angang's earnings outlook.

"The steel industry entered a sluggish period last year, and it will take several years for the whole industry to recover from the current plight of low demand, disorder in competition and overcapacity," he said.

Aluminum downturn

Like the struggling steel industry, domestic aluminum makers are suffering losses too, with the nation's largest aluminum maker booking the largest losses since it was listed in 2007.

Aluminum Corp of China, known as Chinalco - the country's largest aluminum producer - on Wednesday booked a loss of 8.2 billion yuan for the 2012 fiscal year.

In a filing with the Shanghai Stock Exchange, the State-run aluminum maker attributed the hefty losses to worsening macroeconomic trends, rising raw material costs, higher power prices, and slumping prices for its major aluminum products.

The huge deficit represents a daily loss of 22.55 million yuan in 2012, and is in stark contrast to its 2.38 billion yuan profit a year ago.

In 2012, Chinalco generated 149.5 billion yuan in revenue, up 2.47 percent year-on-year.

The company's earnings have deteriorated since the last quarter of 2011, when it registered a loss of 730 million yuan. The loss widened to 1.09 billion yuan in the first quarter, 2.16 billion yuan in the second quarter, and 1.08 billion yuan in the third quarter, before snowballing to 3.9 billion yuan in the fourth quarter.

"Aluminum companies will continue to stay at a breakeven point amid a backdrop of overcapacity, low demand from downstream industries, and stagnant aluminum product prices," said Cai Hongyu, an analyst with China International Capital Corp Ltd.