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China's Jan-Feb steel profitability doubles

04 Apr 2018 06:12 (+01:00 GMT)
China's Jan-Feb steel profitability doubles

Singapore, 4 April (Argus) — China's total steel sector profits for January and February were higher by 98pc from a year earlier, led by record restocking by trading firms in anticipation of robust spring demand that has yet to materialise.

The sector posted profit of 52.66bn yuan ($8.4bn) in January-February, according to the national bureau of statistics, which does not provide a breakdown of data for these months separately. Profits in the preceding November and December were higher at Yn68.15bn.

Steel sector revenues were higher by 11.7pc at Yn903.5bn during January-February.

Profit growth in March could be slower at least on a month-on-month basis as construction steel demand has not grown to the extent the market had expected leading to the swelling inventories, pressuring margins. Margins are hovering around Yn400-600/dry metric tonne (dmt) at present compared with around Yn2,000/dmt in early January.

Steel inventories at mills affiliated with China iron and steel association Cisa increased by 54pc in the 28 February-31 March period to 14.68mn t. Steel stocks in China's major markets in March increased by 34.1pc from the previous month to 15.43mn t.

Higher inventories have cut into steel prices, with the price of Tangshan billet falling by 9pc during 1 March-3 April. Steel inventories are forecast to fall this month as demand gradually picks up, which could support profit margins.

Operations in China's steel industry in the first quarter of the year were below expectations of most market participants. The key reason was steel output increased at a fast pace while prices have fallen by more than Yn1,000/dmt since the end of December, said Cisa secretary-general Liu Zhenjiang. This year demand will be stable so challenge for the steel industry will be to stabilise production in line with demand, said Liu.

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