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BEIJING: Chinese steel producers recorded losses for the first time in three years this month, as prices slid into a bear market, due to weak demand and strong demand. an almost record offer, thus ending strong profit margins.
And with the world's second-largest cooling economy and the increased risks of a growing trade war with the United States, Chinese steelmakers are likely to suffer more if Beijing does not launch new stimulus measures, according to traders and investors. analysts.
In the face of falling prices, Chinese steelmakers, which produce half of the world's steel, control costs by returning to iron ore, a cheaper and cheaper raw material, for the benefit of miners like the group. Australian Fortescue Metals.
Chinese steel production reached a record 82.55 million tonnes in October, but steel prices and margins have since narrowed as China has reduced winter production limits to to reduce smog, while demand is weakened by the cold weather slowing down the construction sector.
"Fat margins have been caused by firm demand and limited supply, which is unsustainable in the long run," said Richard Lu, CRU analyst. "This decline is not temporary but the beginning of a downward trend."
Chinese steel producers have been supporters since 2016, when prices had doubled, as a solid infrastructure boosted demand and supply as a result of the country's tough anti-pollution campaign. the country that had disrupted production.
Beijing also removed 140 million tons of low-end steel capacity in 2017, about 17% of this year's total output.
Profit margins reached a record high of 1,706 yuan (US $ 246) per ton for rebar and 1,326 yuan for hot-rolled coils in December 2017. They remained high this year, pushing mills to increase their production.
But as demand began to weaken this month, steel mills were left with a steel surplus, compounded by lower production restrictions this winter, with China allowing regions to set their own production restrictions. depending on the emission levels.
The price of Chinese rebar – used in construction – fell by 21 percent to 3 496 yuan per ton on Monday, after a seven-year peak in August, putting it in a bear market.
Profit margins have decreased. The rebar producers in the big steel city of Tangshan saw their margins shrink to 297 yuan per ton Monday, against 889 yuan in late October, according to data collected by Jinrui Futures.
Manufacturers of hot-rolled coils (HRC) – used in the manufacturing sector – suffered a loss this month for the first time since November 2015, said Jinrui Futures, estimating it at 130 yuan (18, $ 75) per ton on November 21st.
Tivlon Technologies, a data analysis company on steel and iron ore based in Singapore, expects a loss of 150 yuan per ton for Chinese HRC producers during the second half of November, against 200 yuan in the first half. Most producers of rebar are in equilibrium, according to Tivlon.
DROPS PREMIUM PREMIER ORE
Anticipating a further drop in steel prices, traders who typically stock up in the winter before spring demand picks up are avoiding repopulation, bringing inventories down this year.
"The risk of storing physical steel products at this time is too high," said a steel bar trader from the Chinese province of Liaoning, north China, who gave his last name. to Wang. "The market is generally convinced that prices will only drop if steel companies voluntarily reduce their production."
Faced with falling steel prices, the average utilization rate of Chinese steelmakers fell to 67.54% last week, after three consecutive weeks of rise, revealed the data collected by the firm Mysteel.
Mills that previously favored high quality iron ore for maximum production while emitting the least emissions also reduce costs by using more substandard materials with less than 60% iron.
This change benefits miners such as Fortescue, who have been repressed against high-caliber producers like the Brazilian Vale.
"We have recently seen increased demand, with factories buying more than 58 percent of materials in response to declining steel margins," Fortescue CEO Elizabeth Gaines told Reuters by email.
China's 65% iron ore price fell to $ 81 per ton Monday, its lowest level in seven and a half months, while ore fell to $ 36.50, its lowest level since June, according to SteelHome consulting firm.
This brought the premium for premium products down to $ 44.50, the lowest since March. In July, the premium reached a record 54.70 USD, China's offer for a clearer sky increasing the preference for a better quality ore.
"If margins continue to fall, more factories will be using low-grade iron ore," said a senior manager at a plant in southern China, which produces both high-grade iron bars. 39, frame and HRC.
(1 USD = 6.9397 Chinese Yuan)
(Report of Manolo Serapio Jr. in Manila and Muyu Xu in Beijing, edited by Richard Pullin)
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