Listed steel makers face risk warning

As weakness in downstream markets and rising raw materials costs take their toll on China's steel industry, many of the country's listed mills are expected to report net losses for 2012 in the coming weeks.

As of Monday, Guangdong Province-based SGIS Songshan Co was the latest mill to disclose poor financial results due to deteriorating market conditions. According to a filing it made Monday to the Shenzhen Stock Exchange, the company recorded a net loss of 1.95 billion yuan ($312.79 million) in 2012, marking its second straight year in the red, a development which will lead to the imposition of a delisting risk warning (*ST) mark on its shares Tuesday according to the exchange's delisting regulations. The steel maker booked a loss of nearly 1.14 billion yuan in 2011.

This announcement also prompted a suspension of the company's stocks Monday. Trading will resume Tuesday, when a 5-percent daily limit will be placed on its movements.

Yet, SGIS Songshan is unlikely to be the only steel producer that will see such a warning mark placed on its stock this year. Its poor financial results may soon be mirrored by other mills given the severe overcapacity problems and high overhead expenses witnessed across the domestic steel industry in 2012.

These problems may continue into the year ahead, Zhang Lin, an analyst with Beijing-based Lange Steel Information Research Center, told the Global Times Monday.

"Take iron ore prices for example. Currently, 61.5 percent Australian fine ore is priced above $160 per ton CIF (cost, insurance and freight included) at China's Rizhao port," she explained. "The price is quite expensive for many domestic steel producers, and there have been no signs that it will decline any time soon."

China's large- and medium-sized steel mills achieved 1.58 billion yuan in combined profits for 2012, down 98.22 percent from the previous year; while 23 of the country's major steel producers suffered 28.92 billion yuan in combined annual losses last year, about 7.39 times more than the country's eight loss-making mills lost in 2011, according to figures the China Iron and Steel Association (CISA) published at an industry conference in Beijing Thursday.

Out of the mainland's 26 listed steel makers that had posted performance forecasts for 2012 as of Sunday, 19 were predicting net deficits or reduced profits for the year, according to statistics from the Securities Daily.

Among them, Angang Steel Co stated Thursday that it expects its loss for 2012 to widen over the previous year to 4.16 billion yuan. If the company's prediction proves accurate, its shares would also be subject to a delisting risk warning.