China Metal Firms' Profits Shredded by Weak Property, Europe

Industry News 03:49:27PM Feb 01, 2012 Source:SMM

SHANGHAI, Jan 31 (Reuters) - A host of Chinese steel and other metals firms have flagged steep falls in their profits for last year, as the European debt crisis and a government-engineered slowdown in the domestic property market whittle away at materials prices.

Heavy hitters including Aluminum Corporation of China Ltd (Chalco) and top listed steelmaker Baoshan Iron & Steel Co Ltd (Baosteel) are among those to have warned that profits last year fell by around half or more.

Companies are required by the Hong Kong and mainland China stock exchanges to pre-announce their results if there are sharp swings. The companies will formally release their 2011 results around late March.

The hit to their profits highlights the extent of the impact of debt problems in Europe and the slowdown in the Chinese property market, the former having weighed on economic activity broadly while the latter has acutely impacted Chinese demand for metals used in construction.

One of the worst-hit Chinese steelmakers so far is Angang Steel Co Ltd , based in northeastern Liaoning province, which said in a statement late on Monday that it expected to record a net loss of around 2.2 billion yuan ($347 million) for 2011.

Investors fled on the news, pushing its Hong Kong-listed shares down by 10.9 percent on Tuesday.

"The warnings reflect the weak economic conditions in Q4 2011 and lead to an anticipation that a slowdown in the (Chinese) economy will continue at least into Q1," said Alex Wong, a director at Ample Finance Group.

The world's second-largest economy and biggest growth story of the past several years is slowing, with economic output expanding by an annual 8.9 percent in the fourth quarter, down from 9.1 percent in the third quarter.

While overall momentum is decelerating gradually, sectors such as metals that have relied on the breakneck pace of investment in housing and infrastructure could be in for harsh times ahead as the government seeks to fend off property price bubbles and reduce the economy's reliance on investment.

In a further sign that things could get worse before they get better, economists expect China's vast manufacturing sector to have shrunk in January, according to the median forecast in a Reuters poll for the purchasing managers' index that is due to be published on Wednesday.

"The outlook of the metal industry will depend very much on growth momentum of the sectors in infrastructure and the property market, but we don't see any positive sign at the moment," said Linus Yip, chief strategist at First Shanghai Securities.

"The worst has yet to come," Yip said of the parallel trends of shrinking demand for steel and aluminium and higher costs.

EXTERNAL FACTORS

It is not just events at home affecting Chinese metal makers' fortunes.

In its warning of a more than 50 percent fall in 2011 profit, top Chinese aluminium maker Chalco singled out the European debt crisis as a reason for the fall in aluminium prices that led to a loss for the company in the fourth quarter, cutting its profits for the full year.

Mining and engineering giant Metallurgical Corporation of China Limited (MCC) sustained a double hit from the slowdown in construction, saying profits last year fell 20-30 percent on losses at a zinc smelting subsidiary and falling profits from its property business.

Other steelmakers to warn on big falls in profits last year included Nanjing Iron & Steel and Maanshan Iron and Steel Co Ltd, both of which said earnings fell by more than half as weak demand undermined prices, especially in the fourth quarter.

Baosteel said earlier this month that its profits last year fell by over 40 percent, for the same reasons.

To be sure, corporate China as a whole has hardly seen the end of strong profit growth.

Top Chinese automaker SAIC Motor Corp forecast a rise of more than 40 percent in 2011 profit on Tuesday, thanks to solid demand for German and American brand cars made at its Shanghai ventures.

Construction equipment maker Zoomlion Heavy Industry Science and Technology Co Ltd said its net income rose 55-75 percent in 2011 to between 7.23 and 8.16 billion yuan, as it increased sales of its heavy industrial equipment.

Still, with the economy set to continue to slow, and no end in sight to Beijing's restrictions on property aimed at containing home prices, there are few signs that steelmakers in particular will see a rebound anytime soon.

"Investors are now estimating when the weak economic situation will bottom out. For stocks like Maanshan Iron, I don't think it will turn around so soon in the current market conditions," said Wong with Ample Finance.
 

Key Words:  base metal  steel 

China Metal Firms' Profits Shredded by Weak Property, Europe

Industry News 03:49:27PM Feb 01, 2012 Source:SMM

SHANGHAI, Jan 31 (Reuters) - A host of Chinese steel and other metals firms have flagged steep falls in their profits for last year, as the European debt crisis and a government-engineered slowdown in the domestic property market whittle away at materials prices.

Heavy hitters including Aluminum Corporation of China Ltd (Chalco) and top listed steelmaker Baoshan Iron & Steel Co Ltd (Baosteel) are among those to have warned that profits last year fell by around half or more.

Companies are required by the Hong Kong and mainland China stock exchanges to pre-announce their results if there are sharp swings. The companies will formally release their 2011 results around late March.

The hit to their profits highlights the extent of the impact of debt problems in Europe and the slowdown in the Chinese property market, the former having weighed on economic activity broadly while the latter has acutely impacted Chinese demand for metals used in construction.

One of the worst-hit Chinese steelmakers so far is Angang Steel Co Ltd , based in northeastern Liaoning province, which said in a statement late on Monday that it expected to record a net loss of around 2.2 billion yuan ($347 million) for 2011.

Investors fled on the news, pushing its Hong Kong-listed shares down by 10.9 percent on Tuesday.

"The warnings reflect the weak economic conditions in Q4 2011 and lead to an anticipation that a slowdown in the (Chinese) economy will continue at least into Q1," said Alex Wong, a director at Ample Finance Group.

The world's second-largest economy and biggest growth story of the past several years is slowing, with economic output expanding by an annual 8.9 percent in the fourth quarter, down from 9.1 percent in the third quarter.

While overall momentum is decelerating gradually, sectors such as metals that have relied on the breakneck pace of investment in housing and infrastructure could be in for harsh times ahead as the government seeks to fend off property price bubbles and reduce the economy's reliance on investment.

In a further sign that things could get worse before they get better, economists expect China's vast manufacturing sector to have shrunk in January, according to the median forecast in a Reuters poll for the purchasing managers' index that is due to be published on Wednesday.

"The outlook of the metal industry will depend very much on growth momentum of the sectors in infrastructure and the property market, but we don't see any positive sign at the moment," said Linus Yip, chief strategist at First Shanghai Securities.

"The worst has yet to come," Yip said of the parallel trends of shrinking demand for steel and aluminium and higher costs.

EXTERNAL FACTORS

It is not just events at home affecting Chinese metal makers' fortunes.

In its warning of a more than 50 percent fall in 2011 profit, top Chinese aluminium maker Chalco singled out the European debt crisis as a reason for the fall in aluminium prices that led to a loss for the company in the fourth quarter, cutting its profits for the full year.

Mining and engineering giant Metallurgical Corporation of China Limited (MCC) sustained a double hit from the slowdown in construction, saying profits last year fell 20-30 percent on losses at a zinc smelting subsidiary and falling profits from its property business.

Other steelmakers to warn on big falls in profits last year included Nanjing Iron & Steel and Maanshan Iron and Steel Co Ltd, both of which said earnings fell by more than half as weak demand undermined prices, especially in the fourth quarter.

Baosteel said earlier this month that its profits last year fell by over 40 percent, for the same reasons.

To be sure, corporate China as a whole has hardly seen the end of strong profit growth.

Top Chinese automaker SAIC Motor Corp forecast a rise of more than 40 percent in 2011 profit on Tuesday, thanks to solid demand for German and American brand cars made at its Shanghai ventures.

Construction equipment maker Zoomlion Heavy Industry Science and Technology Co Ltd said its net income rose 55-75 percent in 2011 to between 7.23 and 8.16 billion yuan, as it increased sales of its heavy industrial equipment.

Still, with the economy set to continue to slow, and no end in sight to Beijing's restrictions on property aimed at containing home prices, there are few signs that steelmakers in particular will see a rebound anytime soon.

"Investors are now estimating when the weak economic situation will bottom out. For stocks like Maanshan Iron, I don't think it will turn around so soon in the current market conditions," said Wong with Ample Finance.
 

Key Words:  base metal  steel