Steel mills still struggle in losses in October as raw material prices rise while monthly average steel price falls

In terms of raw materials, the prices of raw materials used by steel mills continued to rise in October. Iron ore prices rose in October, and the rise accelerated in the second half of the month. At the same time, coke prices saw a third round of hike in early October, followed by a mild retreat. The monthly average price of coke surged compared with September. Steel mills’ iron ore and coke costs rose 4% and 7% respectively on a MoM basis. In terms of steel prices, although steel prices began to rise in late October, bolstered by constant macro stimulus factors, such as issuance of additional 1 trillion yuan of government bond, the monthly average price of various types of steel fell due to sharp drop earlier triggered by tepid real estate recovery and disappointing end-use demand. Steel mills switched to production of flat steel products, leading to inventory build-up. As a result, prices of medium-thickness plates fell more sharply than other types of steel. Against the background of rising raw materials and falling steel prices, SMM data showed steel mills suffered a loss 233 yuan/mt on average in October. The losses were 369 yuan/mt for medium-thickness plates, 333 yuan/mt for rebar on a tax-excluded basis, and more than 100 yuan/mt for the rest steel products.

In early November, due to the impact of recent macro policies, market sentiment was relatively optimistic, driving the overall prices of ferrous metals, including steel, to go up. Growing steel mill maintenance will ease oversupply pressure while macro policies could drive demand to pick up slightly, thus market fundamentals will improve. In view of simultaneous rise in steel and raw material prices, steel mills’ profit margins may not change much in November.