Losses of steel mills expanded in December as steel prices underperformed raw material prices, and this situation to extend into January   

In terms of raw materials, in December iron ore price retraced down after hiking, and then rose again. Replenishing demand was felt from impact of the lifting of environmental protection-related production restrictions in Tangshan at the beginning of December. Expected interest rate cuts boosted market confidence. In addition, rising futures price added bullishness into spot price at ports. Under this circumstance, iron ore price skyrocketed in December. There were two rounds of coke price uptick, mainly due to coking coal price growth and strong buying appetites of steel mills. Steel costs hiked by 110 yuan/mt in December. In terms of steel prices, steel prices first rose and then fell in December. Driven by strong expectations and high costs, steel price moved upwards, but crept down in late December, owning to a large demand erosion amid a plunge in temperature in various places. Overall, steel prices rose in December, with monthly average prices of HRC and medium thickness plate increasing by 100 yuan/mt and 110 yuan/mt. Raw material price uptick came at a larger magnitude than steel product price gain, making loss of steel mills bigger in December. According to the SMM steel cost model, the average loss of steel products in steel mills in December was up 55 yuan/mt MoM at 171 yuan/mt. Among them, the losses without tax for rebar and cold rolled coil were 199 yuan/mt and 214 yuan/mt.
Looking forward to January, sustained ore price growth boosted by winter storage and a round of coke uptick will keep pushing up steel costs. Therefore, steel price may surge, but the upside will be partially curbed by weak terminal demand ahead of the Chinese New Year. SMM predicted that the increase in raw material prices in January will still be higher than a gain in finished product prices, probably leading more losses of steel mills.