China Mills Profits Recover Fast Due To Rising Prices

The profitability of China's blast furnaces (BF) and electric arc furnaces (EAFs) rebounded rapidly in July, driven by robust domestic steel prices and lower production costs.

As of July 27, profits that domestic blast furnace mills earned from rebar sales averaged 718 yuan per tonne ($ 110 per tonne), a sharp increase of 722 yuan per tonne from a month earlier, according to a Mysteel estimate based on current prices for steel and steel. raw material prices. The improved profitability was boosted by a decrease in operating costs by RMB 188 /t on average monthly to RMB 4,782 /t, including 13% VAT.

The rapid recovery in mills' profits is mainly attributable to higher steel prices. They reportedly began to rise amid growing fears that steel production would contract for the remainder of this year.

Many Chinese steel mills have received requests from local authorities to cut steel production in the second half of the year. “Some steel mills have already taken steps such as cutting iron ore purchases, maintaining their steel mills or delaying new projects,” said a market source in Shanghai.

Mysteel Global notes that the likelihood of imposing production restrictions has boosted optimism in China's steel market, but has also put some pressure on prices for raw materials such as imported iron ore.

For example, the national price of HRB400E rebar with a diameter of 20 mm, indicative of the sentiment of the Chinese steel market, was estimated by Mysteel at 5467 yuan per ton, including 13% VAT as of July 27. the highest since May 20, while Australia's Mysteel SEADEX 62% fines index fell $ 19.25 a tonne in a month to a nearly two-month low of $ 199.05 a tonne in Qingdao on the same day.

July is a traditional off-season for steel consumption in China, with high temperatures and heavy rainfall in most parts of the country. End-user spot demand for steel has indeed been sluggish this month, especially in the second half of July, due to severe flooding in Henan province in central China and Typhoon In-Fa, which brought heavy rains this week in Zhejiang, Shanghai and East Jiangsu. China. as reported.

Another Mysteel study found that the daily trading volume of construction steel, including rebar, wire rod and reel, among 237 Chinese traders monitored by Mysteel, fell on the third working day to 141,897 tonnes per day as of July 27, down one more ... 34,005 tons /day or 19.3% per day, which is the lowest since May 27.