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Thursday 4 September 2008
Slumping Steel Demand Bodes Ill for Iron Ore, Coke Suppliers
“It only took a month for steelworks to go from hot summer to cold winter,” says Yang Siming, General manager of Nanjing Iron and Steel Co., Ltd. (Nanjing Steel), describing the steady decline of steel prices since mid-June.
Slumping Steel Demand Bodes Ill for Iron Ore, Coke Suppliers
“It only took a month for steelworks to go from hot summer to cold winter,” says Yang Siming, General manager of Nanjing Iron and Steel Co., Ltd. (Nanjing Steel), describing the steady decline of steel prices since mid-June.
At the China Steel Raw Materials and Fuels Summit, held recently in Xiamen in Fujian Province, falling demand for steel was the hot topic in the industry. Spot prices for iron ore and coke have also decreased after a surge.
Production drops or stops
“The price of steel per ton fell by more than 1,000 yuan in July,” Yang told China Business News. In July, steel profits were 400 million yuan, but in August there were big losses for long steel products, as high as 800 yuan/ton, with an average of 400 to 500 yuan/ton.
To break even, Nanjing Steel, which found itself in the impossible position of high prices for raw materials but low demand, needs to reduce production by 30 percent of to achieve best results. To maintain market share in against a highly competitive field, Nanjing Steel has reduced production by 10% since August, but is still suffering monthly losses of 10-20 million yuan.
Nanjing Steel is not the only large-scale steelworks to have reduced production since August. Some small steel firms have actually halted production due to high costs and low prices. Xiong Xiaoxing, chairman of Xinyu Iron and Steel Co., Ltd., in Jiangxi, disclosed to reporters that the company planned to bring forward equipment maintenance to normalize production cuts.
“The ‘winter’ is caused by slumping downstream demand, so it is not short-term but long-term.” Yang Siming pointed out. Research by Nanjing Steel on Yangtze River Delta firms has revealed hard times for downstream steel companies, some of whom have been forced to close down.
Geng Bingxi, Deputy Secretary-General of the Metallurgical Commercial Chamber of the National Industry and Commerce Federation, spoke recently of a noticeable first half decline in the growth rates of real estate and building materials, industries strongly connected to metals, resulting in forced price reductions. According to the latest information provided by “My Iron and Steel,” a well-known source of domestic steel industry information, the last week of August was the seventh consecutive week of steel price declines. The prices of construction steel, plate, and hot and cold volume board have all fallen.
Decline of Ore and Coke Prices
The continuous decline of steel prices is putting a damper on the market for iron ore and coke. Coke prices of these weeks have been far lower than those of July, while the spot price of iron ore decreased even earlier.
On September 1, the spot price of 63.5% iron ore was 1260 to 1,300 yuan, lower by 200 yuan/ton than a month ago. Port statistics on August 8 showed that domestic port inventories of iron ore are still as high as 67.55 million tons, up 52.86% over the same time last year. Port inventory of domestic iron ore hit a record since the end of 2007 and has not been digested.
And because of the sluggish steel and iron market, the Coking Enterprise Union in Shanxi has recently decided to lower September prices by 5%, ranging from 150 to 200 yuan/ton. In addition, coke firms in Shanxi Province will also limit production 40-50% to alleviate current inventory pressure.
During the first half, Shanxi coke prices increased seven consecutive times, by about 1,400 yuan/ton. In August, the average price of coke reached nearly 3,000 yuan/ton, a rise of around 100% since the beginning of this year. “In October the coal prices will also decline,” predicted Yang Siming, adding that there will be little space for iron ore price increases next year, and a global surplus in the year after next.
Liu Zhimei, Undersecretary-General of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers and Exporters, expects 2008 supply growth of iron ore to exceed consumption. “The current and next spot price trends will affect iron ore negotiations in 2009. As there shows a decline trend of iron ore and coke prices, it is not realistic to expect increases at the end of this year.” At the same time, to curb steel exports, the government may raise export tariffs on steel products. If so, original steel exports may return to the domestic market, aggravating oversupply and resulting in further declines in steel prices.
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Slumping Steel Demand Bodes Ill for Iron Ore, Coke Suppliers
“It only took a month for steelworks to go from hot summer to cold winter,” says Yang Siming, General manager of Nanjing Iron and Steel Co., Ltd. (Nanjing Steel), describing the steady decline of steel prices since mid-June.
At the China Steel Raw Materials and Fuels Summit, held recently in Xiamen in Fujian Province, falling demand for steel was the hot topic in the industry. Spot prices for iron ore and coke have also decreased after a surge.
Production drops or stops
“The price of steel per ton fell by more than 1,000 yuan in July,” Yang told China Business News. In July, steel profits were 400 million yuan, but in August there were big losses for long steel products, as high as 800 yuan/ton, with an average of 400 to 500 yuan/ton.
To break even, Nanjing Steel, which found itself in the impossible position of high prices for raw materials but low demand, needs to reduce production by 30 percent of to achieve best results. To maintain market share in against a highly competitive field, Nanjing Steel has reduced production by 10% since August, but is still suffering monthly losses of 10-20 million yuan.
Nanjing Steel is not the only large-scale steelworks to have reduced production since August. Some small steel firms have actually halted production due to high costs and low prices. Xiong Xiaoxing, chairman of Xinyu Iron and Steel Co., Ltd., in Jiangxi, disclosed to reporters that the company planned to bring forward equipment maintenance to normalize production cuts.
“The ‘winter’ is caused by slumping downstream demand, so it is not short-term but long-term.” Yang Siming pointed out. Research by Nanjing Steel on Yangtze River Delta firms has revealed hard times for downstream steel companies, some of whom have been forced to close down.
Geng Bingxi, Deputy Secretary-General of the Metallurgical Commercial Chamber of the National Industry and Commerce Federation, spoke recently of a noticeable first half decline in the growth rates of real estate and building materials, industries strongly connected to metals, resulting in forced price reductions. According to the latest information provided by “My Iron and Steel,” a well-known source of domestic steel industry information, the last week of August was the seventh consecutive week of steel price declines. The prices of construction steel, plate, and hot and cold volume board have all fallen.
Decline of Ore and Coke Prices
The continuous decline of steel prices is putting a damper on the market for iron ore and coke. Coke prices of these weeks have been far lower than those of July, while the spot price of iron ore decreased even earlier.
On September 1, the spot price of 63.5% iron ore was 1260 to 1,300 yuan, lower by 200 yuan/ton than a month ago. Port statistics on August 8 showed that domestic port inventories of iron ore are still as high as 67.55 million tons, up 52.86% over the same time last year. Port inventory of domestic iron ore hit a record since the end of 2007 and has not been digested.
And because of the sluggish steel and iron market, the Coking Enterprise Union in Shanxi has recently decided to lower September prices by 5%, ranging from 150 to 200 yuan/ton. In addition, coke firms in Shanxi Province will also limit production 40-50% to alleviate current inventory pressure.
During the first half, Shanxi coke prices increased seven consecutive times, by about 1,400 yuan/ton. In August, the average price of coke reached nearly 3,000 yuan/ton, a rise of around 100% since the beginning of this year. “In October the coal prices will also decline,” predicted Yang Siming, adding that there will be little space for iron ore price increases next year, and a global surplus in the year after next.
Liu Zhimei, Undersecretary-General of the China Chamber of Commerce of Metals, Minerals & Chemicals Importers and Exporters, expects 2008 supply growth of iron ore to exceed consumption. “The current and next spot price trends will affect iron ore negotiations in 2009. As there shows a decline trend of iron ore and coke prices, it is not realistic to expect increases at the end of this year.” At the same time, to curb steel exports, the government may raise export tariffs on steel products. If so, original steel exports may return to the domestic market, aggravating oversupply and resulting in further declines in steel prices.
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