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.