Chinese steel producers have a demand problem, and some analysts say they see little relief in sight, even if prices for iron ore ease. Falling demand, particularly in China, has cast a shadow over the sector, and Goldman Sachs has a tipped the problems to continue at least until the fourth quarter.
China economic data released Thursday added to the poor outlook, as second-quarter gross domestic product growth cooled and price inflation continued to slow in June. Earlier in the week, Baoshan Iron & Steel Co. — China’s second largest steel mill by output — put traders on notice that it would cut its hotrolled- coil (HRC) and cold-rolled-coil (CRC) steel prices by another 300 yuan ($44.30) a ton for August,a decrease of approximately 5%, though Dow Jones Newswires quoted the company as saying that,overall, most of its products won’t see price cuts.
The lower price will push Baoshan’s cash profit to 699 yuan a ton, about the same level as in the first quarter of 2009, “when the company just broke even,” Citigroup Global Markets analysts Scarlett Chen and Thomas Wrigglesworth said in a note earlier this week. Meanwhile, Wuhan Iron & Steel Co. said it too would cut prices by the same margin, and the Citi analysts tipped a 300-400 yuan per-ton cut by rivals Angang Steel Co. and Maanshan Iron & Steel Co.
The analysts said Shanghai-quoted prices for CRC steel, in particular, have gone into “free fall,” with the result hurting the larger producers more than the smaller ones, which will need to cut production by far less. “Angang and Baosteel have taken the heaviest hit” from the drop in CRC price levels, they said. Among the data released Thursday were figures showing China’s steel-products output was 15.9% higher in June than in the year-earlier month.
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