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Major steel mills back in black

By Jiang Wei (China Daily)
Updated: 2009-06-30 08:02

Molten steel pours from a furnace at a Dongbei Special Steel Group mill in Dalian, Liaoning province. Major steelmakers are slowly seeing better days on improved demand. [CFP]

China's major steel mills turned profitable in May for the first time since last October due to weeks of surging steel prices and low iron ore prices.

Around 72 large and medium-sized steel mills in the country made a combined profit of 1.26 billion yuan ($184.44 million) in May, said Chi Jingdong, an official with the China Iron and Steel Association (CISA).

This is the first time that major steelmakers have recorded a monthly profit compared with a loss of 1.87 billion yuan in October 2008.

Despite the monthly profit, the major mills still had a loss of 2.05 billion yuan between January and May.

Chi attributed the profit in May to the steady increase in steel prices in the past few months and the rise in demand.

Statistics from the association showed that prices of most categories of steel products had increased in May.

Chi said the government stimulus plans have helped drive the demand for steel products. In addition the stockpile of steel products has also decreased.

An industry insider, who declined to be named, said steelmakers benefited from the low iron ore costs in May, but said it may not last for too long.

Related readings:  Steel industry has net loss in first four months  Impasse over iron ore continues  China's first international iron ore trade center debut  Chinese steel mills reject iron ore price cut

He said costs for iron ore were low in May as prices in the spot market were lower than the prices agreed between Japanese and South Korean players. China's steel industry is seeking a price cut of at least 40 percent from the 2008 level while rivals from other countries have accepted a 33 percent decrease.

However, the low prices are unlikely to last, as the profits in May and increasing output are putting pressure on China's negotiations with three international miners.

According to statistics from the National Statistics Bureau, China's output of crude steel touched 46.46 million tons in May, up 0.6 percent in the same period last year. The daily output stood at around 1.5 million tons, the highest this year so far.

Cash prices for iron ore imported by China increased 3.3 percent to the highest in more than four months, according to Steel Business Briefing. To keep the spot market price from disturbing the negotiations the CISA has punished the newly established Rizhao International Iron Ore Trading Center in Shandong province, which seeks to be an online platform for iron ore spot trading.

It said the center should pledge not to involve in any acts concerning imports and trading of iron ore any more. It has also asked the center to change its name.