China's Stocks Drop for Second Day; Air China, Angang Decline

By Zhang Shidong

July 11 (Bloomberg) -- China's stocks fell for a second day after oil prices jumped and Angang Steel Co. said an accounting rule change may cut earnings, renewing concern that corporate profit growth may slow.

Air China Ltd. led carriers lower on concern jet fuel costs will rise. Aluminum Corp. of China Ltd., known as Chalco, climbed on speculation prices of the metal will rise after the country's producers agreed to reduce output.

``Rising fuel costs and some bad corporate news have put pressure on the market,'' said Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, which manages the equivalent of about $850 million. ``The restricted aluminum supply will be an incentive for the industry.''

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 23.72, or 0.8 percent, to 2,950.01 at 1:14 p.m. local time. Two stocks dropped for each one that advanced.

The measure has gained 7.6 percent the past five days, on course for the first winning week in eight, as forecasts of higher profits at companies including China Merchants Bank Co. and Poly Real Estate Co. eased concern that government measures to curb inflation will hurt earnings.

The central bank this year ordered banks to set aside a record amount in reserve after raising interest rates six times last year. The CSI 300 is down 45 percent this year, the world's second-worst performing major benchmark index tracked by Bloomberg.

Air China, Angang

Air China, the world's biggest airline by market value, fell 2.9 percent to 9.67 yuan. China Southern Airlines Co., the nation's largest carrier by fleet size, dropped 1.7 percent to 7.74 yuan. Jet fuel accounted for about 40 percent of Chinese airlines' costs in 2007, according to their annual reports.

Crude oil yesterday soared 4.1 percent to settle at $141.65 a barrel in New York, the biggest one-day increase since June 6. It was little changed at 141.73 a barrel in after-hours trading.

Angang Steel, China's second-biggest steelmaker by value, retreated 3.2 percent to 13.60 yuan, the biggest drop since July 1. Angang said its 2008 profit will be cut by 126 million yuan ($18 million) because of changes in the rules for asset depreciation.

Chalco, the nation's biggest aluminum maker, gained 3.6 percent to 14.52 yuan. Yunnan Aluminium Co., China's fourth- largest producer, added 3 percent to 9.28 yuan.

Chalco and 19 of its peers signed the accord yesterday to curb supply by 5 percent to 10 percent, the China Nonferrous Metals Industry Association said in a statement. The agreement will cut output by a maximum 400,000 metric tons in the second half, the group said. Aluminum gained as much as 6 percent to $3,380 a ton on the London Metal Exchange.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, retreated 0.8 percent to 2,852.40. The Shenzhen Composite Index lost 1.3 percent to 858.93.

The following stocks rose or fell. Stock symbols are in brackets after company names.

Shanxi Xinghuacun Fen Wine Factory Co. (600809 CH), a wine maker, fell 0.56 yuan, or 4 percent, to 13.40, a second day of declines. The company said first-half profit probably fell more than 50 percent because of lower sales. The company is due to report earnings on Aug. 20.

Western Mining Co. (601168 CH), China's second-largest maker of lead concentrate, slipped 0.41 yuan, or 2.6 percent, to 15.60. The company said 1.2 billion shares will become tradable July 15 as a lock-up period expires for investors who bought stock before the company's initial share sale.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net