Angang Steel shares drop as weaker growth hits

PUBLISHED : Tuesday, 17 April, 2012, 12:00am
UPDATED : Tuesday, 17 April, 2012, 12:00am

Angang Steel shares dropped as much as 5 per cent yesterday on a profit warning and weaker-than-expected economic growth on the mainland.

The largest steel company traded in Hong Kong expects to lose 1.89 billion yuan (HK$2.32 billion) in the first quarter, compared with a 71 million yuan gain in the same period last year, the company said yesterday. Shares in Angang dropped as low as HK$5.16 before ending at HK$5.31, down 2.7 per cent.

The mainland steel industry was expected to be hit by losses in the first quarter due to a credit crunch and the cooling property market, BOCI Research steel analyst Michelle Leung said.

High iron-ore prices compounded by weak product prices had seen mainland steel mills hit by 2.8 billion yuan in losses in the first quarter, the official China Securities Journal reported yesterday, citing a China Iron & Steel Association source.

Mainland gross domestic product expanded 8.1 per cent in the first quarter, compared with an 8.5 per cent growth prediction by Premier Wen Jiabo for the full year. The lower-than-expected economic growth in the first quarter means demand for steel will be sluggish for some time.

Leung forecast that Angang would continue to be in deficit in the second quarter as demand for flat steel, which is used in manufacturing and shipbuilding, showed no sign of recovery.

Shanghai Baosteel failed to raise contract prices for steel in April and May despite a rise in iron-ore prices, she said. Angang, which failed to pass on the higher raw material prices to customers in April, also had been unable to raise product prices in May, she added.

'Unless there is a consolidation within the industry which will see many small steel mills closing down on the mainland, steel prices will continue to be weak,' Leung said.