Hubei steelmakers to cut production on weak prices, demand pessimism

SHANGHAI, Aug 22 (SMM) – A slew of steelmakers in Hubei, landlocked province in Central China, announced their plans for maintenance and production curtailments in recent days, as high costs and low steel prices have pushed them to the verge of losses and as demand is expected to falter ahead of the Military World Games in October.

This came after steelmakers in Shaanxi, Shanxi, Gansu, Sichuan, Hunan and Shandong said earlier this month that they will slash their production to prop up steel prices.

Ezhou Hongtai and Wuhan Shunle will conduct maintenance for seven to ten days, starting from August 22, with daily output of 5,500 mt estimated to be impacted.

Jinshenglan will lower the scrap rate to cut one-third of its production.

Echeng Steel will put its bar production line under 45-day maintenance from the middle of September, which is expected to affect rebar output by 100,000-110,000 mt.

Steelmakers in Hubei saw higher costs compared to counterparts in other regions, as it takes more fees and time to deliver iron ore to the inland province. SMM research found that shipping charges for iron ore with Hubei as destination came in at 140-160 yuan/mt, compared to 30-50 yuan/mt to east China.

Longer delivery period of 25-40 days, meanwhile, means that steelmakers in Hubei are using iron ore of higher prices. Spot iron ore prices averaged 879 yuan/mt in late July and 808 yuan/mt in early August, while the price stood at 719 yuan/mt in the middle of August, SMM assessments showed.

Steelmakers in Hubei cost close to 200 yuan more than mills in other regions to produce one mt of steel, showed SMM calculations.

Weak steel prices also weighed on Hubei steel mills. Prices of building materials in the Wuhan market have been the lowest across the nationwide markets since the second half of this year, as local demand was more sluggish than other regions in a low season, after a construction rush in the first half of the year as builders expected operation limitations or suspension ahead of the Military Games.

Echeng Steel’s rebar traded at 3,660 yuan/mt in Wuhan on August 22, 134.5 yuan/mt lower than the nationwide average of 3,794.5 yuan/mt, showed SMM assessments.

The long-anticipated Military World Games will take place in Wuhan during October 18-27. Trucks will be forbidden to travel on the roads in the center of the city from September 1, according to the city’s traffic authorities.

This, together with market talks that local construction sites will suspend from middle or late September, is set to depress demand for steel building materials.