Steel Mills Cut Ex-works Prices, See Further Declines in Profit

SHANGHAI, Oct. 21 (SMM) -- On October 21st, Shagang Group released price adjustments for some products for late October 2011, with the adjustments based on the price policy for mid-October. The group cut rebar prices by RMB 120/mt, with current ex-works prices for Φ16-25mm HRB335 rebar at RMB 4,530/mt, cut wire rod prices by RMB 130/mt, with current ex-works prices for Φ6.5mm HPB235 wire rod at RMB 4,720/mt, and cut coiled rebar prices by RMB 130/mt, with current ex-works prices for Ф8mm HRB400 coiled rebar at RMB 4,770/mt.

Continuous slumps in steel prices forced steel mills to lower ex-works prices, which further squeezed profit margins at steel mills. Figures from China’s National Development and Reform Commission released on October 20th show that steel industry achieved profits of RMB 206.7 billion in the first eight months of 2011, up 32.6% YoY, with the YoY growth rate down 63.1 percentage points from 2010 level. The profit from the ferrous metal mining and dressing sector was RMB 62.19 billion, up 54.5% YoY, with the YoY growth rate down 80.3 percentage points from 2010 level, while the profit from the ferrous metal smelting and pressing sector was RMB 104.17 billion, up 22.8% YoY, with the growth rate down 76.9 percentage points from 2010 level.

In summary, Chinese steel mills can only secure marginal profits currently, and some higher-cost steel mills even suffer losses based on current steel prices, so there is a high likelihood that steel mills will cut production for the foreseeable future.