SHANGHAI, Mar. 29 (SMM) -- According to the China Iron & Steel Association (CISA), its steel mill members suffered combined losses of RMB 548 million in February, with total profits down RMB 8.825 billion or 106.62% YoY. These steel mills reported losses of RMB 2.804 billion from January to February, with total profits down RMB 19.147 billion YoY. According to statistics, a total of 34 steel mills were operating at a loss in February, accounting for 42.5% of total CISA’s steel mill members. Although medium and large steel mills experienced better economic benefits in February, the overall steel industry still suffered losses.

It is worth noting that steel prices fell faster than costs. Steel prices were down by 12% YoY from January to February, but production costs were only down by 9%. Generally speaking, 1-2 months are needed for any changes in raw material prices to be felt by production costs, so steel mills actually faced greater cost pressures.

Many steel mills had begun to cut purchases of raw materials including iron ore since the end of 2011 while conducting unit maintenance and cutting production in an effort to minimize risks. Many industry insiders said aside from steel mills, steel products traders, iron ore traders and other companies in the steel industrial chain were all suffering losses. If raw material costs can not become reasonable, the overall steel industrial chain will be affected.

Steelease believes steel prices will rise steadily in 2Q 2012 along with recovering demand, but any price rises should be limited due to overcapacity. As steel market can not improve significantly, high raw material prices will force many steel mills to limit or suspend production, or even to go bankrupt. Demand for iron ore and other raw materials will weaken along with accelerating capacity elimination and mergers and acquisitions, which will in turn push iron ore prices down to the reasonable level.