Angang Steel Company Limited (000898.SZ/00347.HK, hereinafter "Angang") held its interim results briefing on August 31. Confronted with a negative gross margin in its main business and a near-doubling of losses, Angang's management attributed the operational strain to an external environment characterized by oversupply in the steel industry, a weak cycle, and low prosperity, while vowing to achieve stable operations during this phase of declining output.
A staggering interim loss exceeding 2 billion yuan stands in stark contrast to management's narrative of stability amidst consecutive years of shrinking financial performance. Huang Lichong, President of Hoken International Capital, told our correspondent that Angang's current predicament is not merely a cyclical downturn, but a compound challenge stemming from three concurrent shifts: the selling price–cost price scissors, changes in asset utilization, and customer credit occupation. These three factors cannot simply be attributed to broader industry trends.
Trailing Behind
The first half of 2026 was indeed challenging for China's steel sector, yet it was far from a complete collapse. According to the China Iron and Steel Association (CISA), key surveyed enterprises generated cumulative operating revenue of 3.05 trillion yuan in the first half, down 0.7% year-on-year. Total profits reached 58.4 billion yuan, a 5.5% decline, with a sales profit margin of 1.92%. Even after accounting for cyclical pressures, the core steel business of these key CISA enterprises still posted a profit of 16.7 billion yuan.
National Bureau of Statistics data confirms industry-wide pressure, with national crude steel production at 500 million tons, down 3.0% year-on-year. Apparent crude steel consumption fell 3.6% to 437 million tons, indicating demand contracted more sharply than production. Nevertheless, key enterprises remain collectively profitable. Angang's interim report card, however, reveals a glaring divergence from the industry average.
During the reporting period, Angang recorded operating revenue of 45.907 billion yuan, down 5.58% year-on-year. The net loss attributable to shareholders of the listed company widened to 2.047 billion yuan, compared to a loss of 1.115 billion yuan in the same period last year—representing an 83.59% expansion in losses. Even more notable is the shift in gross margin. The interim report shows Angang's main business, steel rolling and processing, posted a gross margin of -1.83%, down 2.55 percentage points year-on-year.
Tian Yong, Director and General Manager of Angang Steel, elaborated on the current situation: in the first half of 2026, the oversupply in the steel industry remained unchanged, with weak-cycle and low-prosperity operations. Steel prices stayed depressed while costs for raw materials like iron ore and coking coal remained high, persistently narrowing the purchase-sale price gap and further compressing profit margins. By product, hot-rolled sheet series products saw a gross margin of -3.38%, cold-rolled sheet series -3.23%, and medium-heavy plates -0.30%. This means that for every ton of steel sold, the company not only fails to profit but also subsidizes costs.
Acknowledging the sustained operational pressure, Tian Yong candidly stated that in response to the complex and severe market conditions, the company is anchoring on high-end, intelligent, and green development, deepening its "Five-Type" enterprise initiative, and continuing to advance "value-focused, fully calculated operations." While maintaining stable high-quality production and enhancing internal controls led to sequential production improvements in the second quarter, the company remains in a loss-making position due to the persistently narrowing market spreads.
Extending the timeline reveals an even more stark cumulative impact of losses. In the first half of 2024, Angang lost 2.689 billion yuan; in H1 2025, the loss narrowed to 1.115 billion yuan; and in H1 2026, the loss expanded again to 2.047 billion yuan. Over three years, interim losses alone have accumulated to nearly 6 billion yuan. Including full-year figures, the 2024 annual loss was 7.122 billion yuan, bringing total cumulative losses over the past three years to over 14.4 billion yuan.
Huang Lichong further dissected the causes of the losses, asserting that the core contradiction is not the widely speculated "low proportion of long-term raw material contracts" but rather the confluence of three factors: selling prices falling faster than costs, product structure upgrades failing to offset traditional business shortfalls, and insufficient capacity utilization amplifying fixed costs. He noted that Angang disclosed that pulverized coal injection and imported fines purchase prices "outperformed the market" in the first half, with external energy costs per ton of steel down 29% year-on-year, self-generated power ratio up 4.04 percentage points, and comprehensive energy consumption per ton down 10 kilograms—and these public figures do not support the conclusion of "uncontrolled raw material procurement costs."
During the same period, Inner Mongolia Baotou Steel Union Co., Ltd. (Baotou Steel) delivered a starkly different performance. In the first half of 2026, Baotou Steel achieved operating revenue of 28.034 billion yuan, down 10.52% year-on-year, but net profit attributable to shareholders reached 279 million yuan, up 84.61% year-on-year. Its non-recurring-item-excluded net profit surged 316.37% to 445 million yuan. Particularly notable was Q2 performance, with single-quarter attributable net profit of 742 million yuan, achieving a sequential turnaround to profitability. In the same market, with the same raw material prices and demand environment, the divergence in performance is stark—raising the question: to what extent is Angang's predicament "cyclical" versus "structural"?
Structural Cracks
While revenue and profit declines might be attributed to industry trends, deeper changes in the balance sheet point to more intrinsic contradictions. Financial data reveals that Angang is using debt instruments, credit policies, and impairment provisions to buffer cyclical shocks, but this has also spawned new issues, including a surge in on-balance-sheet lease liabilities and rising bad debt risk.
The first warning signal is the simultaneous explosion in right-of-use assets and lease liabilities. As of June 30, 2026, right-of-use assets jumped from 105 million yuan at end-2025 to 1.588 billion yuan, an increase of over 14 times. Lease liabilities soared from 36 million yuan to 1.35 billion yuan. Lease liabilities due within one year also rose from 73 million yuan to 213 million yuan. While the interim report does not detail the specific asset categories of the newly added leases, combined with trends showing construction in progress falling to 2.118 billion yuan and other payables such as project payments dropping sharply from 4.313 billion yuan to 2.712 billion yuan, a plausible explanation is that the company is shifting its capital expenditure strategy from "self-construction" to "leasing" to ease near-term funding pressures.
Huang Lichong commented that this change carries distinct company-specific characteristics and should not be simplistically labeled as "debt maturity substitution." He explained that current accounting standards already require lessees to recognize right-of-use assets and lease liabilities, and the core of this change is the substantial addition of new lease arrangements in 2026, not a change in accounting standards. Notes to the interim report show that newly added right-of-use assets totaling 1.565 billion yuan in original value all came from leases—approximately 908 million yuan for machinery and equipment and 638 million yuan for buildings.
The second signal comes from increased asset impairments and subtle shifts in credit policy. During the reporting period, Angang recognized asset impairment losses of 219 million yuan, up 170% from 81 million yuan in the same period last year. All of this consisted of inventory write-downs, indicating that accumulated finished steel and raw materials are depreciating at an accelerating pace.
Huang Lichong believes that the countercyclical surge in accounts receivable is more alarming than lease liabilities. This is not a common phenomenon in a declining steel industry but represents a clear deviation from industry averages. During the reporting period, Angang's accounts receivable grew 23.5% from 3.084 billion yuan at year-end to 3.809 billion yuan—a countertrend increase despite an 5.58% decline in revenue. Huang assessed the room for "exchanging credit sales for revenue" as very limited. With core steel business profit margins at only 0.77%, there is insufficient profit buffer for credit losses, and the marginal benefit of loosening payment terms to boost sales has turned negative. Looking ahead, industry credit will become further stratified—large central state-owned enterprise downstream customers will maintain relatively stable payment terms, while credit limits for real estate chain entities and private traders will continue to tighten.
On the cash flow front, Angang reported net cash flow from operating activities of 1.672 billion yuan in the first half, a substantial 333.16% year-on-year increase that sharply contrasts with the significant net loss. The financial report attributes this primarily to an expanded letter of credit forfaiting business scale, reduced monetary capital expenditures, and combined impacts of procurement rhythm and payment term changes.
Addressing the investor-critical question of when the company might return to profitability, Li Jingdong, Director, Vice President, Chief Accountant, and Board Secretary of Angang Steel, responded at the results briefing that in the second half of 2026, escalating global trade protectionism and geopolitical tensions are elevating external uncertainties, with steel exports facing dual challenges of compliance and trade barriers. Domestically, the industry will continue its "strong supply, weak demand" pattern, downstream homogeneous competition is severely eroding profits, combined with frequent raw material price fluctuations and rising carbon costs from the hard constraint of "dual carbon emission controls," steel enterprises face sustained operational pressure.
For Angang, the true test at the bottom of the industry cycle is only just beginning. Whether management's turnaround measures such as "extreme cost control" and "lean management" will prove effective, and when the industry's capacity consolidation will reach an inflection point, will determine whether this veteran steelmaker can navigate through the current cycle.