Friday, April 29,
China’s steel sector still faces the problem of excess capacity and controlling the output remains cumbersome. Expensive imported ore encourages steel makers to purchase iron ore from domestic market.*
* Excess capacity
China Iron & Steel Association (CISA) blames small-scale and privately-owned steel mills for the long-standing supply glut that has been weighing on prices and profits in steel sector.
However, analyst suggest that an anticipated cut down in power supplies in the coming months might help in reducing the output and boost prices.
* Expensive raw materials
Higher input cost especially imported iron ore is shrinking profit margins of steel makers in China. Taking cues from this, few small Chinese blast furnaces have stopped using imported iron ore.
A Hebei-based steel company opted to purchase 40% of its ore from the domestic market compared with 15% in 2010. Hebei Iron & Steel Group said last week that its first-quarter profit also fell by 3%o n higher raw-material costs and increased competition.
Xu Lejiang, chairman of Baosteel, said that some Chinese steelmakers have stopped importing iron ore. However, the amount of iron ore imports that have been suspended is not large, he added.
According to CISA, If Chinese steelmakers’ profits continue to remain depressed, then more and more steel producers will opt for suspending imports of spot iron ore.
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