China's steel sector profits shrink inexorably
China's steel sector profitability fell about 28.5 percent in June from the previous month, as rainfall and interruptions in construction activity in hot weather caused a drop in demand amid record levels of primary steel production.
China's steel sector profit in June, including primary and secondary units, was 27.5 billion yuan (about $ 4 billion), up from 38.45 billion yen in May, according to estimates based on data from the National Bureau of Statistics.
Import prices for iron ore, which hit five-year highs, have also lowered the profitability of enterprises.
Cumulative profit for January-June decreased by 21.8 percent to 143.49 billion yen. Profits were mainly expected to fall this year due to the slowdown in economic growth in China. But if the government continues to stimulate the economy by increasing spending on infrastructure projects, as well as expected seasonal highs in demand in September and October, this could increase annual profits in the second half of the year. Growth in China's real estate sector remains robust in both investment and new project launches that will support steel prices throughout the year.
But higher levels of supply may continue to weigh on prices this year. Winter steel production restrictions this year will be less severe than last year, as Beijing opted to phase out output based on the emission profiles of steel mills. It remains unclear whether Beijing will enforce restrictions on Class A, B and C businesses, or whether provinces will have their own rules. Beijing exempted factories that achieved ultra-low emissions from any production cuts.
Profits at smelters fell this month as demand in the construction and manufacturing sectors remains weakened and iron ore prices remain above $ 110 /t. Despite production constraints in Tangshan City, steel supplies are still at their maximum levels.
Rebar and hot rolled coil manufacturers currently average 100-300 yen per tonne. Profits won't pick up significantly in August as demand usually bounces back in the fall months of September and October, when construction sites rush to complete work ahead of the winter period from November.