The steel industry faces difficulties when the price of steel products decreases rapidly, but the price of iron ore remains high.

China's steel mills are in a dilemma when they may lose all of their profits this month when the price of steel products fell much more sharply than the price of steel materials after the Government increased strengthen inspection and control measures to prevent the market from overheating.
Steel and iron ore prices on the Chinese market rose to an all-time high on May 12, 2021, stimulated by the strong recovery of the world economy after the pandemic, especially the Chinese economy; decline in global supply (in the case of iron ore) and speculative buying (in the Chinese market).

However, after that point, the price turned down.

Prices of rebar - used in construction, and hot-rolled coil - used in manufacturing (the most-traded contract on the Shanghai Stock Exchange, China) have increased by 14.5% and 17.5% respectively on 12  first day of May 2021, then fell more than 24% over the next 2 weeks. From May 12 to now, steel prices have fallen by about 18%, losing all the gains of the past 2 months.

In the last session of May (May 31), the price of rebar and hot-rolled coil recovered after falling for 2 consecutive weeks. Accordingly, bar steel for October delivery increased by 2.5% compared to the previous session, to 5,027 CNY (789.96 USD)/ton; hot rolled coil increased 1.3% to 5,354 CNY/ton, and July stainless steel futures rose 2.7% to 15,750 CNY/ton.

However, for the whole month of May, the price of rebar decreased by 6.8%, while hot-rolled coil decreased by 5.9%, mainly due to the policies of the Chinese Government as well as market trends.

Information from the China Logistics Information Center predicts that steel prices in this country in June will only fluctuate within a narrow range.

While the price of steel plummeted like that, the price of iron ore fell only moderately, putting high-cost pressure on steel producers.


Session 31/5, the price of iron ore for September futures (reference contract) on Dalian bourse increased by 4.5% to 1,106 CNY/ton; the price of iron ore 62% imported to China's seaport increased 1% to $192.5/ton.

In comparison, although the price of iron ore on the Dalian stock exchange has decreased by 17% since May 2021, in general in May, iron ore prices still increased by 1.6%.

As a result, the profit margin from rebar production in Eastern China from above CNY 1,000 ($157)/t in April 2021 has dropped to just CNY 40/ton in the past week, according to the data of CITIC Securities.

The production capacity utilization rate of blast furnaces at 247 steel mills across China rose to 91.41% in the week ended May 29, a record high since early March this year, according to a report. Data from consulting firm Mysteel.

As for other steel materials, the price of coking coal on the Dalian bourse on May 31 fell 1.2% to CNY 1,767/ton, while coking coal rose 2.5% to CNY 2,479/ton. In general, in May, coking coal prices increased by nearly 10% (price at the end of April was 1,610 CNY/ton), while coking coal price decreased by about 3%, from CNY 2,552.5/ton a month earlier.


Zhuo Guiqiu, an analyst at Jinrui Capital, said some factories in eastern China are losing money, while manufacturers in the north are also struggling. He did not name any factories.

Hunan Valin Steel Company, based in central Hunan province, last Thursday (May 27) said: "Steel prices fell more than iron ore prices. Currently, iron ore prices are still high, leading to relatively large pressure on our operations".

A report from China Logistics Information Center said that the sharp fluctuation in steel prices this month has reduced demand from the end consumer.

Meanwhile, construction steel demand in June is forecasted to slow down due to the rainy season, while the auto industry is still affected by the global shortage of semiconductors.

In recent weeks, parts of central and southern China have experienced record-breaking rainfall, although overall rainfall so far this year has been 10% lower than in the same period last year. Currently, 71 rivers have exceeded warning levels, in the context of meteorological agencies warning that global warming is driving extreme weather phenomena, information from Xinhua News Agency reported on May 26. Not only rain but there are also many extreme weather phenomena in China such as tornadoes, hail... in the South and scorching temperatures in the North of the country. All of those weather developments are detrimental to construction activity, slowing down construction progress, which in turn could reduce demand for rebar in the coming months, adding further downward pressure on prices to iron and steel.

The world supply of iron ore is still not enough while the demand increases sharply.

Brazil exported 25.75 million tons of iron ore in April, down from 27.54 million tons in March and much lower than the 34-35 million tons per month achieved in August and September last year. Top exporter Australia exported 71.28 million tonnes in April, down from 76.73 in March as a tornado hit the main manufacturing area in Western Australia state.

Meanwhile, imports of iron ore into all markets increased. Iron ore imports into China in the first four months of this year increased by 6.7% to 381.98 million tons. China's steel output in April also reached a record high of 97.85 million tons, up 4.1% compared to March, making the total steel output in the first four months of the year increased by 16% compared to the same period last year 374.56 million tons. Japan, the second-biggest buyer of iron ore in Asia, imported 8.99 million tonnes in April, the highest since September 2019. South Korea, the third-largest importer in Asia, imported 6.79 million tonnes in April, the second-highest since January 2020. Europe's seaborne iron ore imports also rose to 8.71 million tonnes in April, the highest since October last year and marking the third consecutive month of increase.

With the above basic factors, it is forecasted that the steel industry in the coming time will continue to face difficulties, especially the construction steel industry.

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