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  SteelHome >>Raw Material>>Steelmakers' Info>>Industry Dynamics
 
Decreasing Iron Ore Price may Ease Cost Pressures in Steelmaking for China

http://en.steelhome.cn [SteelHome] 2019-08-23 17:15:59

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In 2018, steel prices jumped to a high point in China, which promoted steel sales performance for many steel mills in China. In the first half of this year, however, the financial performance for steel mills in China overall was not that good from the reports released by some China’s steel mills on August 22, 2019. According to the reports, the average net profits in steelmaking fell by around 40% year-on-year because of the increasing price of raw materials in steelmaking, slack demands for steel in downstream industries, strict production limitations for environmental protection and trade frictions between China and the United States.

 

Profits of Steelmaking for China’s Steel Mills Declined in 2019 H1

 

On the evening of August 22, 2019, many steel enterprises in China announced their 2019 H1 production and financial reports. Baosteel, leading steel enterprise in China, announced that the operational income in 2019 H1 was 140.876 billion yuan, down 5.16% year-on-year; the net profits was 6.187 billion yuan, down 38.19% year-on-year; the net cash flow from operational activities was 9.437 billion yuan, down 51.53 year-on-year. In addition, other steelmakers in China like Shandong Steel, XinJiang Ba Yi Iron & Steel, and Hangzhou Iron & Steel Group also announced that the financial performance declined compared with 2018 H1.

 

Increasing Cost Pressures on Purchasing Iron Ore in Steelmaking in 2019 H1

 

According the statistics from China’s National Bureau of Statistics, the profit of ferrous metal for smelting industry and rolling processing industry totaled at 143.49 billion yuan in China from Jan. to Jun., 2019, a year-on-year decrease of 21.8%, which was reckoned as the main reason for the increase in revenues of several steel companies but the decline in net profit. In addition, in the upstream of steelmaking industry, the price of iron ore and coking coal rose rapidly, which brought the higher operational costs in steelmaking for the companies. Taking Shandong Steel as an example, the sales gross profit margin and net profit margin fell to 5.51% and 1.16% respectively in 2019 Q1, since the price of steel fell and the price of iron ore rocketed during these periods.

 

Forecast: the Steel Industry in China may Recover in the Second Half of 2019

 

Since the beginning of July, iron ore futures prices have shown a downward trend. As of August 22, the iron ore futures index fell by nearly 30% during a month, falling to 600 yuan/t.

 

In addition, coking coal futures prices continued to rise since 2016. Although the 2001 contract price of coking coal remained at a high level in 2019 H1, it has also shown a downward trend since August.

 

The senior analyst of SDIC Anxin Futures said that the iron ore market itself has little contradiction in its fundamentals, which is mainly affected by the price trend of black commodities such as finished products and other raw materials. It is expected that the iron ore market in China may run with fluctuations in the near term.

 

Baosteel considered that due to the equipment maintenances in advance this year, the steel supply in 2019 Q4 is expected to increase slightly year-on-year, but demands for steel on the downstream market may remain unchanged, which appears an unbalance market between supply and demand sides. Therefore, the continuous price rising in iron ore will be limited, and the price of iron ore may fluctuate sharply during the second of 2019.


(To contact the reporter on this story: cody.wang@steelhome.cn or 86-555-2238837)
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