China’s Steel Mills Pushed Output Up, But Profits Slipped

SEATTLE (Scrap Monster): China’s steel mills lifted average daily crude steel output to 2.45 million metric tons in September, but profits sank: only about 7% of producers were in the black by month-end.

What does this mean?

China is the world’s biggest steelmaker, so its mill decisions ripple through construction, manufacturing, and global commodity markets. Reuters said September’s run-rate rose 1.9% from August as exports stayed strong and mills bet on a seasonal pickup in demand at home. But total crude steel output for the month still fell 1.4% to 73.59 million tons, according to National Bureau of Statistics data cited by Reuters, underscoring that a higher daily pace can coexist with weaker overall production.

The main red flag is pricing power. Mysteel data cited by Reuters showed the share of profitable steelmakers sliding to about 7% at the end of September from 32% in late August, a sign that selling prices aren’t keeping up with costs. That fits with Reuters’ note that domestic demand remains soft as China’s property downturn drags on. And it helps explain why production over the first nine months was still down 2.9% from a year earlier to 724.77 million tons.

Why should I care?

When margins compress this fast, it turns into a cash problem. Mills typically protect liquidity by dialing back run-rates and, just as important, delaying fresh purchases of iron ore and metallurgical coal while they burn through inventories. So even if headline steel output is slow to fall, demand for seaborne steelmaking inputs can soften sooner, pressuring miners, shippers, and the commodity prices linked to those raw materials.

Courtesy: www.finimize.com