BEIJING, July 10 -- Steel shares in China roared up recently, mainly driven up by the wide expectation that steel sector's profit margin would surge up in the H2.

    An analyst said "China's steel market is bottoming out. And though low July season cuts demand, and steel price rally runs out of steam, it would not arrest the profit rise in the sector in the following 6 months."

    He also said that ‘Steel industry has a close tie up with macro economy and there seems slim chance for steel prices to fall back again in the second half in view of the looking up domestic economy and recovering housing market.”

    He added that “Some uncertainties stay. Key steel-making ingredients price like iron ore and coke shows signs of upturn in future, which would send production costs higher at steel mills. Meanwhile, if global steel prices stay below domestic one, export of the later would certain to be blocked.”

    He suggested domestic steel mills not rush to run at full-rate to avoid a sudden supply explode since China mills still mired in loss in the first five months, with total deficit posting at CNY 3.886 billion.

    While some research institutes believe the reviving steel market was driven by robust demand, which started to return since the Q2 stemming from government investment in infrastructure which was mainly displayed in the following aspects:

    1. The capacity utilization rate moves up to a relatively high level.

    2. Stocks at steel mills and market haven’t risen by large during January to May when steel production mounted up and export dived, and even started to fallen back during March to May.

    3. China steel prices started to post overall upswings since mid April.

    As a result, market players speculate profit margin in the sector would shoot up in H2. Steel demand would continue the uptrend in the period as a result of the rising digest from automakers and builders. Meanwhile, export is likely to rally in second half as a survey show order entries from overseas improve notably amid rising export quotations. And capacity utilization rate also advanced to 73%, a reasonable level.

    Official from China Iron & Steel Association has earlier reported that 72 large and medium sized steel mills have made a total profit of CNY 1.262 billion in May ending a losing streak of 7 months. Steel production in the month also hits new high since last July.

    (Source: Economic Information Daily)