Bloomberg News

China Steel Prices, at 10-Month Low, May Trigger Output Cuts

October 17, 2011

(Updates with Angang share prices in sixth paragraph.)

Oct. 17 (Bloomberg) -- Chinese steel prices may extend their decline after slumping to the lowest in 10 months, prompting producers in the world’s biggest consumer of the alloy to bring forward maintenance or cut output, analysts said.

Hot-rolled coil was 4,538 yuan ($712) a metric ton on Oct. 14, the lowest since Dec. 20, according to researcher Beijing Antaike Information Development Co. The benchmark product has fallen since reaching 4,837 yuan at the end of August, data compiled by Bloomberg show.

Prices are dropping on concern a slowing global economy and moderating demand from construction in China may curb consumption. The decline is starting to squeeze profits, with Angang Steel Co., the largest Hong Kong-traded Chinese steelmaker by market value, saying on Oct. 14 its nine-month net income may have fallen 91 percent from a year earlier.

“Steel mills are not willing to cut production until they see negative margins - one reason we believe steel prices have not yet reached a bottom,” Shirley Zhao and Henry Liu, Hong Kong-based analysts at Mirae Assets Securities, said today in an e-mailed note.

Chinese steelmakers produced 1.64 million tons of the building material a day in the first 10 days of October, up 0.2 percent from the prior 10 days, Custeel.com said, citing data from China Iron and Steel Association released today.

Angang Falls

Angang Steel fell as much as 3.3 percent to HK$5.06 and traded at HK$5.10 as of 3:08 p.m. in Hong Kong, compared with a 1.5 percent gain in the benchmark Hang Seng Index. The company was downgraded to “neutral” from “trading buy” at OSK (Asia) Securities after it said its nine-month profit may have plunged.

Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, said on Oct. 12 it kept the prices of most of its products unchanged for November, ending two months of increases.

“Prices charged by mills may be higher than spot prices, so steelmakers are still profitable at the moment,” said Hu Yanping, an analyst at Custeel.com. “They may have to cut production in future if prices continue to fall.”

This may result in lower output in November than this month, she said.

Maanshan Iron & Steel Co., China’s biggest train-wheel maker, plans to stop two of its blast furnaces for as long as nine days for inspection and a slab line for five days, Custeel.com said on its website. Angang Steel, along with some smaller mills, may also halt medium-plate production for 13 days, according to the industry portal.

--Helen Yuan. Editors: Ryan Woo, Indranil Ghosh

To contact Bloomberg News staff for this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net.


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