Tuesday , March 2 2021

Party over: As the edges spread, China's steel mills are scarce for hard times



MANILA / BEIJING (Reuters) – Chinese steel producers produced losses for the first time in three years this month as prices went into a drop-edge bear market and record supply, end years of solid profit margins.

FILE PHOTO: A man works in front of a furnace in steelworks from Dalian Special Steel Co. Ltd in Dalian, Liaoning province, China June 20, 2018. REUTERS / Stringer / File Photo

And with the world's economy number 2 cooling and facing rising risks of increasing US military war, China's steel makers are likely to feel more pain unless Beijing launches fresh stimulation measures, traders and analysts say.

In the midst of tumbling prices, Chinese – half-world-made Chinese mills – spend costs by returning to cheaper, very low-priced raw material iron ore for miners such as the Australian Fortescue Metals Group (FMG.AX).

China's steel production came to a record of 82.55 million tonnes in October, but steel prices and edges have corrected since China has been abolished on winter output targets aimed at smuggling, while demand weakens as cold weather slows down the construction sector.

"Long-term unsustainable, fat demand and tidy supply, caused by long-term unsustainable supply, said CRU analyst Richard Lu. "This downturn is not temporary but start a downward trend."

China's steel producers had been party-friendly since 2016 when prices were returned as a strong, boosted and demanded by infrastructure, as the country's hard-pollution anti-pollution campaign impeded on production.

In addition, Beijing removed 140 million tonnes of low steel capacity in 2017, equal to about 17 per cent of the total output of that year.

Profits margins resulted in a record of 1,706 yuan ($ 246) per tonne for the re-continuation of 1,326 yuan for hot coil in December 2017 and remained high this year, pushing up the thousands to increase output.

But as it failed to miss this month, the mills were abandoned with excessive steel, being complicated by more slow production gaps this winter as China allowed regions to set their own output limits based on emission levels.

China's rebar price – used in construction – has fallen by 21 percent to 3,496 yuan a tonne on Monday from the top seven years that arrived in August, placing it in a technical bear market.

FILE PHOTO: A machine works on mixing iron ore at Porth Dalian, Liaoning province, China September 21, 2018. Photo taken September 21, 2018. REUTERS / Muyu Xu / File Photo

Profits margins failed. Rebar producers in the Tangshan top-steel city see narrow edges to 297 yuan per tonne on a Monday of 889 yuan at the end of October, according to data and tracked by Jinrui Futures.

Hot roller coil makers (HRC) – used in manufacturing – made a loss this month for the first time since November 2015, said Jinrui Futures, estimating it at 130 yuan ($ 18.75) per tonne on May 21.

Tivlon Technologies, a steel and iron ore analysis company in Singapore, expects HRC Chinese producers to realize losing 150 yuan per tonne in the second half of November compared to losing 200 yuan in the first half. Most rebar producers are cut back and down, according to Tivlon.

DROPS PREMIUM ORE UCHEL-GRADD

In anticipation of a further reduction in steel prices, traders who usually re-fill in winter before rising demand and resilience resist resilience, drawing down the lowest lists this year.

"The risk of raising physical steel products is currently too high," said a rebar trader from the northern Liaoning province of China who gave his surname as Wang. "In general, the market believes prices will not be reduced unless steel mills are infringing output voluntarily."

In weaker steel prices, the average use rate in the Chinese mills had fallen to 67.54 per cent last week after rising for three weeks immediately, data produced by the Mysteel consultation showed.

Mills that have previously favored high quality iron ore to ensure maximum output with lower emission also spend expenses by using lower lower grade material with iron content below 60 per cent .

The shift is advantageous for miners such as Fortescue, who have been marked down against high-grade producers such as the Brazilian Fro (VALE3.SA).

"We have seen more demand recently with mills acquiring more 58 per cent material in response to declining steel margins," Fortescue's Chief Executive, Elizabeth Gaines, told Reuters via e-mail.

The price of 65% grade iron introduced to China SH-CCN-IRNOR65 has dropped to 7-1 / 2 months low by $ 81 per tonne on Monday, while 58 percent of mineral is similar to $ 36.50, it's weaker since June SH-CCN-IRNOR58, according to SteelHome's consultation.

The premium broke for a high grade to $ 44.50, the least since March. In July, the premium was able to record $ 54.70 as China's bid for clearer aircraft increased better for higher quality ore.

"If the edges continue to drop, more thousands will use low grade iron ore," said a senior manager in a mill in south China that produces both rebar and HRC.

($ 1 = 6.9397 Chinese yuan)

Report by Manolo Serapio Jr. in Manila and Muyu Xu in Beijing; edited by Richard Pullin

Our Standards:Principles of the Thomson Reuters Trust.

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