Big Chinese steelmakers brace themselves for further losses

Wednesday, 26 November 2008 14:37:53 (GMT+3)   |  
       

Since September 2008, senior management at China's big steelmakers, such as Baosteel, Angang, Wuhan Steel and others, have increased the frequency and depth of their multi-lateral discussions about the current state of the markets, in order to be better positioned to jointly resist the impact of the falling market prices.

The latest statements from the big Chinese steel companies in question indicate an absence of favorable factors capable of supporting confidence on the part of steelmakers, whether in the domestic or overseas markets. None of the producers expect the market to see a turnaround within the next three to four months. Thus, as steel prices continue to drop, the mills are bracing themselves for further losses.

Currently, most medium and small sized steelmakers in China incur an average loss of around RMB 500-800 per metric ton of steel produced. The corresponding rough average figure in the case of the big steelmakers is lower than this range. Nevertheless, due to increasing product inventory levels and the consequent losses in interest on funds, the loss margin for the big producers is climbing steadily upward.

Some reports indicate that, after the spot price of imported iron ore dropped below the negotiated annual contract price level, some steelmakers reduced normal purchases and started to buy their iron ore requirements from the spot market through various channels, in order to cut material costs. However, given the limited scale of these purchases, they seem not to have had an obvious impact in helping to reduce the steel companies' costs.

A senior manager at Angang lately said that, in his view, the recovery of the steel market would be seen at the end of 2009, at the earliest. Baosteel and Wuhan Steel both consider that a revival take place before the end of the second quarter of 2009.

Although all steelmakers will have to accept further losses in the near future, there are conflicting voices as regards the path ex-factory prices should follow in the coming period. Most steel companies are likely to follow the market price trend, yet the latest statements from Baosteel indicate that the giant producer will probably keep its ex-factory prices for January 2009 unchanged from December levels. With the aim of stabilizing the market prices and preventing the exacerbation of losses, Baosteel is to implement stricter measures to cut production, with the complete shutdown of production lines even on the cards.


Similar articles

Iron ore prices drop by over $9/mt week on week, mood remains bad

28 Mar | Scrap & Raw Materials

Goa government to ease policy for liquidating iron ore dumps lying on private land

28 Mar | Steel News

Major steel and raw material futures prices in China - March 28, 2024

28 Mar | Longs and Billet

CISA: Coking coal purchase cost in China down 9.86% in Jan-Feb

28 Mar | Steel News

Brazilian high-grade iron ore price declines sharply in two days

27 Mar | Scrap & Raw Materials

Daily iron ore prices CFR China - March 27, 2024

27 Mar | Scrap & Raw Materials

India’s JSPL takes operational charge of iron ore complex in Venezuela

27 Mar | Steel News

Major steel and raw material futures prices in China - March 27, 2024

27 Mar | Longs and Billet

Vale selected to begin award negotiations for US briquette plant

26 Mar | Steel News

Daily iron ore prices CFR China - March 26, 2024

26 Mar | Scrap & Raw Materials