By Christoph Steitz and Tom Käckenhoff

ESSEN, Germany (Reuters) -Thyssenkrupp has written down the value of its steel division by another 1 billion euros ($1.06 billion), blaming the sector’s worsening outlook as weak demand and Asian competition weigh on German industry’s ability to compete.

The impairment, the second in as many years, drove the German conglomerate to an annual net loss of 1.5 billion euros.

However, its shares jumped as much as 10% as analysts said the writedown could ease the sale of a stake in the troubled steel business while welcoming an unexpected positive cash flow at the group level.

Thyssenkrupp Steel Europe (TKSE) is now valued at 2.4 billion euros in the group’s books, less than half what it was worth two years ago as the prospects for Europe’s biggest economy continue to darken.

The latest impairment on the business comes as Thyssenkrupp hopes that Czech billionaire Daniel Kretinsky, who already owns 20% of TKSE, will raise his stake to 50%.

Like its German industrial peers, Thyssenkrupp has been struggling with a weakening global economy, rising competition from China and high costs, forcing it to seek new owners for its iconic steel business as well as its warship division.

Steelmaking, one of the most energy-intensive industries, has faced high power costs and cheaper Asian rivals for years while requiring billions of euros in investment to cut emissions and produce steel via renewable sources.

In respect of our main strategic issues, the current fiscal year will be a year of decisions – especially for Steel Europe and Marine Systems,” CEO Miguel Lopez said.

CASH FLOW SURPRISE

Analysts at Citi said the impairment was “paving the way for constructive progress” on talks with Kretinsky.

TKSE’s value and related pension liabilities have been sticking points in past efforts to divest the business, all of which have failed.

Kretinsky, via his energy holding EPCG, can step back from a deal with Thyssenkrupp if talks for a 50:50 agreement fail, Thyssenkrupp said, adding discussions depended on a new business plan for the unit which is being drawn up.

Thyssenkrupp’s finance chief told Reuters in October that the company would seek talks with other steelmakers about possible partnerships and tie-ups if a deal did not materialise.

While the impairment drove a hefty annual net loss for the group, Thyssenkrupp turned an unexpected positive free cash flow before mergers and acquisitions of 110 million euros, thanks to pre-payments by customers of its Marine Systems division.

Thyssenkrupp shares, which have lost 41% year-to-date, were last up 10.4%, the biggest gain among German midcap stocks.

The group, which makes products as varied as submarines and car parts, had expected negative free cash flow before M&A – a gauge for investors of the conglomerate’s operational health – of around 100 million euros.

Shares in Thyssenkrupp Nucera, in which Thyssenkrupp holds a majority, were also 3.5% higher after the company released an upbeat trading statement late on Monday.

($1 = 0.9438 euros)

(Reporting by Christoph Steitz and Tom Kaeckenhoff; Additional reporting by Danilo Masoni; Editing by Bernadette Baum and Mark Potter)