Steel profits in China fell sharply in September due to high iron ore prices

According to S&P Global Platts, the profitability of rolled steel production has fallen since the beginning of September due to high prices for iron ore and a "correction" in prices for finished steel.

Domestic rebar margins have nearly halved since the beginning of the month, falling to $ 19.83 /t on September 10, the lowest level since late August 2019. The hot rolled coil margin on September 10 was $ 21.39 /t, the lowest since early May this year.

Physical and futures steel prices in China have declined in recent days due to mixed sentiment, with some participants suggesting prices could be adjusted after the market picks up in the third quarter.

According to Platts, domestic steel prices in China rose 26% in April-September, while domestic prices for rebar rose 10% in the same period.

Weaker credit conditions, along with strong demand for real estate and infrastructure, helped bolster the steel market after China pulled out of the lockdown in the second half of March.

But economists at S&P Global noted in a presentation this month that "financial conditions have tightened as markets have become too optimistic."

“The credit impulse has also turned negative; it threatens a fragile economic recovery, ”economists said.

Chinese steelmakers' margins are also under pressure from high iron ore prices. Platts' steel mill margin model uses a three-week lag for iron ore prices, so IODEX prices in mid-August, which rose to $ 128.80 per tonne CFR China, are now felt in finished steel prices.

The outlook for iron ore is mixed, with some sources in the steel market suggesting prices have peaked and will decline in the fourth quarter, leading to some reduction in steel margins.

However, mining sources said they are seeing extremely strong demand and expect sea-delivered iron ore prices to remain high in the last quarter.