Posted on 05 Nov 2021
The fast retreat in finished steel prices against comparatively firm raw materials prices is hurting the profitability of Chinese steel producers and causing some to start operating at a loss, industry sources warn.
As of November 3, the average gross margin that the ten integrated mills regularly surveyed by Mysteel were making on billet had become a loss of Yuan 117/tonne ($18.3/t). This marked the first time since February 20 that the operations of these major mills in Mysteel's sample had admitted to losing money on making semis.
And it's not just the major blast-furnace producers and their semis business that are suffering; other producers more reliant on sales of finished steel are also losing money, especially electric-arc-furnace (EAF) mills, according to market sources.
"EAF makers in our region are already making losses of around Yuan 100/t," an official from an EAF mill based in East China's Jiangsu stated. "Steel prices have decreased too quickly, whereas raw material prices have retreated only mildly," he said.
As of November 3, China's national HRB400E 20mm dia rebar price assessed by Mysteel had declined by a total of Yuan 905/t from a recent peak on October 9 to reach Yuan 5,134/t, whereas steel scrap, the key raw material of EAF steelmaking, had seen its price ease by only Yuan 96/t over the same period to Yuan 3,626/t on delivery, Mysteel's index shows. Both prices include the 13% VAT.
A few blast furnace-based mills admitted to Mysteel that they have already started to cut back production due to the losses.
"We have just resumed operations on two blast furnaces (after power curbs were eased), but immediately we halted another two due to the losses," an official from a steel producer based in East China's Shandong province stated.
"We've started to lose money across our entire product catalogue and our inventories are building up," another mill source based in North China said. "We have already been forced to slow production," he admitted.
Domestic market sources believe that going forward, mills will tend to defend their steel prices, as well as pare back production costs where they can, to prevent the losses from deepening further.
"At least, steel prices will not decline at the same fast pace that we saw earlier," the official from the Jiangsu EAF mill said.
Mysteel's latest survey showed that by the end of October, the ratio of profitable mills across the 163 Chinese mills sampled had shrunk to just below 70%, whereas a month earlier, the ratio was around 77%.
Source:Mysteel Global
