China’s steel futures tumbled by nearly 30% in a month amid weakening demand and falling costs and industry insiders see more weakness in the rest of the year.
China’s most-traded construction steel rebar futures contract on the Shanghai Futures Exchange close at 4,138 yuan per tonne on Monday, sliding by 29% from a high of 5,808 yuan per tonne set in mid-October. The most-traded futures contract of hot-rolled coil on the Shanghai bourse fell by 24% during the period to hit 4,430 yuan per tonne on Monday.
In the spot market, the price of HRB400E 20MM steel rebar in Shanghai fell to 4,680 yuan per tonne on November 10 from 5,250 yuan per tonne on November 1, according to industry data.
Luo Tiejun, deputy chairman of the China Iron and Steel Association (CISA) said at a forum on Friday that the sector started to feel pressure in October and steel prices have dropped significantly since the start of the fourth quarter.
The fast-falling prices were attributable to weakening demand and declining production cost, said Zhou Minbo, chief analyst at GF Securities.
As property developers’ financing activities are still under pressure, new construction starts remain week; the pace of local government special-purpose bond issuance is still slower than previous years, which constrained infrastructure investment; and automobile production has been limited by the shortage in auto chip supply, according to a note from Guosen Securities.
The weakening demand has pushed higher steel inventories, despite lower steel output.
According to data from the CISA, steel inventories at major mills stood at 12.85 million tonnes in the period of October 21 – 31, rising by 890,000 tonnes or 7.45% from the end of September and increasing by 1.22 million tonnes or 10.53% from the start of the year.
Amid China’s national campaign to cut crude steel output to help reduce carbon emissions, demand and prices of iron ore have been faltering. The most-traded iron ore futures contract on the Dalian Commodity Exchange, for January delivery, closed at 539 yuan per tonne on Monday, slumping by more than 60% from a high of 1,358 yuan per tonne se in mid-May.
China’s crude steel output reached 71.58 million tonnes in October, down 2.9% from September and sliding 23.3% from a year earlier, according to data released by the National Bureau of Statistics on Monday.
Average daily crude steel output decreased by 6.1% in October from the prior month to 2.3 million tonnes, the lowest level since December 2017.
For the first ten months of the year, China’s crude steel output fell 0.7% from the same period last year to 877.05 million tonnes.
Consultancy Lange Steel estimates that China’s average daily crude steel output may drop below 2.2 million tonnes in November, with daily output at large- and medium-sized key steel mills expected to drop below 1.8 million tonnes.
The falling steel prices are adding pressure on steelmakers’ profit margins. Luo said that profits in the steel sector are on a downtrend and profits are expected to decline further in the fourth quarter, adding that some steel firms and producers of some steel products are currently suffering losses.
According to a survey by consultancy Mysteel, average profit margin for steel rebar producers was 246 yuan per tonne at the end of October, falling by 555 yuan per tonne from a month earlier. Average profit margin for hot-rolled coil producers was 402 yuan per tonne, decreasing by 417 yuan per tonne from the previous month.
Listed steel mills’ third-quarter earnings reports showed that most of the companies saw net profit grow at a notably slower pace in the third quarter compared to the first half, with some companies recording year-on-year declines.
For instance, Anyang Steel generated a profit of 1.03 billion yuan in the first three quarters of the year, skyrocketing 5,554% from a year earlier, while in the third quarter alone, its net profit slumped by 28% to 260 million yuan.
Fangda Special Steel Technology Co.,Ltd.’s net profit in the first three quarters jumped 43% year over year to 2.14 billion yuan, but in the third quarter alone, its net profit fell 1.7% to 660 million yuan. Fujian Sangang Minguang Co., Ltd’s net profit in the first three quarters surged 70% year over year to 3.4 billion yuan, but in the third quarter alone, its net profit fell 21% to 630 million.
Liuzhou Iron And Steel Co.,Ltd. recorded 86% growth in net profit in the first three quarters to 2.3 billion yuan, but in the third quarter alone, its net profit fell 10%.