China’s Steel Mills Continue Chasing Fat Margins on Strong Demand



China’s steel prices

As we saw in the previous part of this series, wider margins have prompted Chinese steel mills to continue increasing their output. In 2017, Chinese steel prices rose ~30%, and they’ve remained buoyant this year. In this part of the series, we’ll discuss steel prices’ performance in recent months and their outlook.

China’s steel companies to raise prices

China’s largest steelmaking companies have recently mentioned that they’ll be increasing prices of some hot-rolled coil, beam, and steel wire products for July delivery. These companies include Baoshan Iron & Steel and Wuhan Iron & Steel Co.

China’s Shanghai rebar futures hit a nine-month high after the property data was released, which came in better than expected. The inventory at steel traders and mills has been declining. The de-stocking process, however, has slowed down.

Summer months are usually slow for Chinese construction, which could pressure prices but should be offset, to an extent, from slower expected production growth in June when maintenance works come up.

Impact on mining companies

While steel mills’ overall profitability has remained healthy and steel inventories have stayed low (meaning firm iron ore demand), higher iron ore inventories could still pressure iron ore prices. The trend could be negative for seaborne suppliers (PICK) Rio Tinto (RIO), BHP (BHP)(BBL), Vale (VALE), and Cleveland-Cliffs (CLF).

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