Steel mills resume production amid signs of stability in prices

PUBLISHED : Thursday, 11 December, 2008, 12:00am
UPDATED : Thursday, 11 December, 2008, 12:00am

Small and medium-sized steelmakers on the mainland are resuming production after steel prices have stabilised and are showing signs of rebounding to stay above production costs.

As of Monday, idle steel-making equipment in Tangshan, Hebei, the mainland's largest steel-making province, had dropped to 28 per cent from 58 per cent in September and October, the Hebei Daily reported yesterday, citing figures from Tangshan's industrial investment promotion bureau.

Seven of the 10 furnaces or production lines at Guofeng Iron and Steel, one of the largest steelmakers in the city, that halted early last month had resumed operations, the newspaper said.

'The slump in raw material prices and the rebound of steel prices in the past few weeks prompted small and medium-sized mills to resume production, as they find it profitable again,' said Xu Xiangchun, the chief information officer of steel data provider Beijing Ganglian Maidi e-Commerce.

The production cost of billets, an unprocessed steel product, is about 2,800 yuan (HK$3,160) a tonne, compared with selling prices of about 3,000 yuan. However, steel prices are still more than 30 per cent below their June peaks.

Average steel prices on the mainland had risen about 10 per cent from their all-year lows in mid-November, although that might be a technical rebound triggered by Beijing's stimulus package, low inventories and oversold prices, Mr Xu said. 'There are no signs that demand is picking up.'

Helen Lau, an analyst at Daiwa Institute of Research, also said there was no evidence of an across-the-board demand recovery, as demand from the vehicle, home appliances and container sectors remained weak.

The earnings outlook at steelmakers for this quarter and next remained gloomy, she said.

Mr Xu said steel prices would be moving in a narrow band in the coming months and a recovery might not happen until the second quarter of next year, when the positive impact from the government's infrastructure spending emerged.

'December and the first quarter next year is the traditional low season because of the Lunar New Year and the cold weather, especially in the northern part of China, where work at construction sites will be halted,' he said.