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["bully soft and afraid of hard"-coke is the first to bear the brunt of cost reduction in steel mills.)
Jun 12,2019 19:19CST
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Source:SMM
The content below was translated by Tencent automatically for reference.

Today, a steel mill in Shanxi issued a notice saying: due to the reduction in steel prices for more than one month in a row and the sharp rise in raw material production costs in steel mills, the company has decided to adjust the purchase price of coke: 100 yuan per ton for all coke including tax acceptance.

It is understood that since late April, under the influence of the "intensive" introduction of environmental protection policies in various localities, especially the "intensive" measures for pollution prevention and control in Shanxi Province, coke prices have risen for three consecutive rounds, and even the fourth round of increases in some areas have fallen to the ground. The profits of steel mills have been severely squeezed.

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According to SMM statistics, since late April, the spot price of steel raw material-iron ore has increased by 148 yuan / ton, coke price has increased by 300yuan / ton, Tangshan quasi-first-class metallurgical coke price has reached 2210 yuan / ton. In the case of mining prices, coke prices "flying", steel mill costs continue to rise, in early June has risen 26. 5 to 3514 yuan / ton. Under the double pressure of high cost and falling steel price, the profit of rebar in long process steel plant has dropped by 445 yuan / ton (according to SMM model, the average profit is 877 yuan / ton in late April and 432yuan / ton in early June). Steel mills will not "sit idly by" for the sharp compression of profits, but 80% of iron ore comes from imports, and its fundamental support is still strong. At the same time, market rumors are due to pb blocks affected by early hurricanes, quality problems, Rio Tinto production supply or affected in July and August, resulting in mining prices still maintain a short-term trend of easy to rise and difficult to fall, steel mills are also helpless; However, 87% of the demand for coke comes from iron and steel enterprises, which have greater bargaining power, so steel mills can only "bully the soft and fear the hard" and suppress the price of coke in order to find a way out. The specific research situation is as follows:

Steel Plant A (Hebei): because of its own iron ore procurement channels, the cost of light iron ore is about 100 to 150 yuan cheaper than other steel mills, so although the price of raw materials has risen more, but the net profit of thread is still about 400 yuan / ton.

Steel Plant B (Hebei): Coke procurement mainly comes from Shanxi and Hebei, the price rises rapidly, drives the cost to have the substantial increase, at present the building material net profit is relatively thin, also 100 to 150 yuan, the later stage if the cost continues to rise as a result of the loss, the steel mill must have reduced production.

Steel mill C (Shanxi): Coke is mainly purchased from local sources. At present, the scrap ratio of blast furnace is increased to reduce the cost. At present, the net profit of screw thread in steel mill is 100 yuan / ton.

Steel mill D (Jiangsu): the main source of coke procurement is Shanxi, the current steel mill thread gross profit of 400 to 500 tons, there is a change in the ratio of raw materials to reduce the cost.

Generally speaking, although the environmental protection policy promotes the rise of coke prices, but in the end, its price fluctuations still have to be implemented on the fundamentals of supply and demand. When the profits of steel mills continue to compress, once they choose to reduce production, they will certainly reduce the demand for coke. In this case, coke prices have fallen recently, and in the absence of new policy stimulus, it is expected that it will be difficult to recover again in the later period.

 

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