Reuters: Global Markets: Salzgitter shares slide as profit warning shocks market

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Salzgitter shares slide as profit warning shocks market Aug 6th 2013, 10:37 An employee inspects rolls of steel at the plant of German steel company Salzgitter AG in Salzgitter, Lower Saxony on March 21, 2012. Credit: Reuters/Fabian Bimmer FRANKFURT | Tue Aug 6, 2013 6:37am EDT FRANKFURT (Reuters) - Salzgitter (SZGG.DE) shares dropped 11 percent on Tuesday, a day after the German steelmaker slashed its full-year outlook for a second time this year, blaming a drop in demand for cars, appliances and new buildings in austerity-hit Europe. The profit warning, which prompted downgrades by several brokerages, increases pressure on Salzgitter to cut costs and jobs to return to profit. Salzgitter said late on Monday it now saw a 2013 pretax loss of about 400 million euros ($530 million), compared with a previous outlook for a loss of less than 100 million euros. "That is a substantial profit warning, no wonder that the stock is sliding," one trader said. "The steel industry is just not having any luck right now." The $500-billion-a-year global steel industry, a gauge of economic health, has suffered from a drop in demand from austerity-hit Europe and worries over Chinese growth prospects. Rolled steel prices in Europe have dropped below manufacturing costs as steelmakers compete for a shrinking number of contracts. An extreme contraction in the southern European construction sector in particular is hurting business, Salzgitter said, with no significant recovery in sight. ArcelorMittal (ISPA.AS), the world's No. 1 steelmaker, last week also cut its outlook on weaker than forecast demand in Europe and the United States. Salzgitter's stock, which is down more than 25 percent so far this year, was down 9.8 percent at 25.97 euros by 0554 ET. It was the biggest decliner on Germany's mid-cap index .MDAXI, which was 0.2 percent firmer. KITCHEN SINKING In the first half of 2013, Salzgitter's pretax loss widened to 298.7 million euros from 17.9 million, in part due to a 60 million euro hit related to its holding in copper smelter Aurubis (NAFG.DE) and a 185 million euro impairment charge at its loss-making plant in the northern German town of Peine. Salzgitter is planning to launch a restructuring program, which is expected to include job cuts at Peine, to help it return to profit. "We believe that Salzgitter may have taken the opportunity ... to 'kitchen sink' expectations so as to be in a better negotiating position with unions and other stakeholders in the coming weeks," analysts at Jefferies said. Some other brokerages cut their recommendations on Salzgitter as hopes for a quick recovery diminished. "Assuming trading conditions in the European steel market do not improve soon and the company continues to operate the way it is operating, the Salzgitter shares may potentially lose all their value over the next few years," Societe Generale said as it cut the stock to "sell" from "hold". JPMorgan analyst Alessandro Abate said there were "too many issues" at Salzgitter right now, cutting the stock to "neutral" from "overweight", and Commerzbank's Ingo-Martin Schachel cut his recommendation to "reduce". Salzgitter is due to publish full quarterly financial results on August 14, a day after Germany's biggest steelmaker ThyssenKrupp (TKAG.DE) releases earnings. (Reporting by Maria Sheahan; editing by Keiron Henderson and David Evans) Link this Share this Digg this Email Reprints

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