China steel sector profits slip in September

China's steel sector profits fell by 9pc on the month in September as an inventory build-up in the latter half of the month pressured prices.

Profits were at 39.34bn yuan ($5.64bn) in September compared with Yn43.3bn in August, according to calculations based on the national bureau of statistics (NBS) data.

Cumulative January-September profits were higher by 71pc at Yn313.16bn. Revenues from steel business gained by 15.6pc during this period at Yn4.73 trillion.

Third-party data in the last week of September showed strong inventory builds for the five major products tracked — rebar, wire rod, hot-rolled coil (HRC), plate and cold-rolled coil. Total inventory rose by around 422,000t at both mills and warehouses from the preceding week. Rebar warehouse stocks rose by less than 20,000t, while HRC stocks rose by nearly 60,000t at warehouses.

The Argus-assessed price of domestic HRC, ex-Shanghai, the basic steel product processed further to manufacture cars, home appliances and machineries, fell by 3.2pc in September. The price of rebar, ex-Shanghai, which is used in construction, made a modest gain of 1.5pc.

Steel mills profits have recovered in October largely because of a 4pc increase in rebar prices amid tighter stocks. Third-party data on 25 October showed rebar stocks in warehouses down by 339,000t on the week, while inventories at mills were lower by 59,900t.

Rebar producers in Shandong reported profits at around Yn1,400/t, up by around Yn400/t from early-October. Tangshan rebar producers are making profits of Yn1,000-1,400/t. A HRC producer in Shanghai reported a profit of Yn1,000/t.

Average steel mill profits in September were around Yn700-1,000/t. Billet producers in Tangshan are making a gross profit of around Yn800/t.

A Hebei-based steel mill said their profits for wire rod was around Yn1,000/t, up by 100-200/t over last month because of an increase in construction steel prices.

But sharp gains in iron ore and coking coal prices are pressuring mill margins, although mills are likely to continue using higher-quality raw materials to maintain peak productivity in the near term amid a rollout of winter steel output restrictions in several Chinese cities from next month.