Losses of Steel Mills Remain Large in March, Improvement Not Expected in April

SHANGHAI, Mar. 28 (SMM) – Cost for steel production including taxes was around RMB 3,738/mt in March, basically flat at February’s level. Although iron ore prices fell noticeably in March, costs remained high as steel mills mainly used iron ore purchased at high prices in February for production. Steel billet prices (tax included) in Tangshan was RMB 3,250/mt in late March, leaving mills in a loss of nearly RMB 500/mt. Thus, nine blast furnaces in Tangshan were under maintenance, cutting molten iron output by some 91,000 mt, with the output decline expanding 10,000 mt from the end of February and 70,000 mt from late January. Steelease believes the costs for steelmaking will be lower in April, but steel mills may still suffer losses.
 
First, the recovery in steel demand from end users in March missed forecast. That, combined with the unfavorable policies, left steel consumption poor. Hence, steel mills cut purchasing prices for iron ore and contained raw material inventories so as to ease financial pressure, which has driven iron ore prices to fall sharply.

Second, coke prices also dropped in March due to low steel prices and less support from coking coal prices caused by rising operating rates at coking coal mines.

Finally, the softer recovery in end users’ demand compared with last year and low buying interest among steel traders resulted in excess inventories at steel mills. In this context, steel prices will unlikely show large increase in April. Therefore, steel billet prices are expected to hold stable in April and losses of steel mills may remain around RMB 300/mt.