Profits among the 91 Chinese blast-furnace steel mills sampled by Mysteel shrank sharply in May due to the further growth in steelmaking costs and the large fluctuations in domestic finished steel prices.
Last month, the sampled mills’ profit margins on rebar reversed down after the continuous growth over the prior three months to average Yuan 176/tonne ($27.5/t), lower by Yuan 543/t on month, according to Mysteel’s latest monthly survey released on June 12. The mills’ margins on sales of hot-rolled coil (HRC) posted an even larger on-month retreat of Yuan 688/t to average just Yuan 477/t, the data show.
The surveyed steel producers gained more profits on their sales of medium plates in May, where the average margin was Yuan 585/t, despite the on-month fall of Yuan 636/t, the survey showed.
One major reason for the slump in mills’ margins was the higher production costs the makers had to endure from the rise in steelmaking raw material prices. For example, the Mysteel SEADEX 62% Australian Fines index averaged $204/dmt CFR Qingdao in May, up by another $25/dmt from that for April. Meanwhile, the price of secondary metallurgical coke in North China had surged by Yuan 549/t on month to average Yuan 2,656/t last month.
These increases contributed to the steady rise in domestic steel mills’ steelmaking costs in May, with the cost of making molten iron among the 91 BF mills averaging Yuan 3,370/t excluding the 13% VAT, the survey found. This represented a large jump of Yuan 343/t or 11.3% on month compared with the on-month rise of only Yuan 97/t in April.
On the other hand, domestic steel prices experienced significant fluctuation in May following central government warnings about the rapid growth in bulk commodities prices. The fast retreat in steel prices in the second half of May squeezed domestic steel mills’ profit margins, Mysteel Global noted.
As of May 31, the national price of HRB400E 20mm dia rebar, a bellwether of China’s steel-market sentiment, was assessed by Mysteel at Yuan 5,257/t including the 13% VAT, higher by Yuan 2/t from the end of April but still far below the record high of Yuan 6,348/t set on May 12.
Transactions for steel products in the physical market also slowed down from mid-May as end-users preferred to stay on the sidelines after noting the uncertainty in steel prices. This in turn dragged down average trading volume for the whole month.
Mysteel’s other survey showed that the daily trading volume of construction steel comprising rebar, wire rod and bar-in-coil among the Chinese 237 traders under Mysteel’s monitoring averaged 212,771 tonnes/day in May, down by a huge 18.3% compared with the average for April.
Written by Nancy Zheng, zhengmm@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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