Chinese steel mills still under cost pressure in January

China Steel Development Research Institute (CSDRI) shed some light on the production costs among the Chinese steel mills for January, and its surveys among the Chinese producers suggested the persistent pressure, as both scrap and coal-related product prices had been up more substantially on year, which was hard to be offset by lower seaborne and domestic iron ore prices, Mysteel Global noted from its latest report released on February 24.

Iron ore, steel scrap, coal, and coke, as the core steelmaking raw materials in China, account for over 70% of the total steel production cost, though Chinese steel producers' production costs vary widely because of their locations and raw material procurement scheme including the timing and payment, CSDRI explained. The Institute is a non-government organization acting as a thinktank for China's steel industry development planning.

Last month, Chinese steel mills' coking coal price soared the most by 77.2%, PCI price surged 66.9%, coke price up 22.1%, and scrap price gained 15.2%, while imported iron ore price fell 27% and domestically-produced iron ore concentrates price ebbed 15.8%, all in terms of on-year comparison, according to the report.

In terms of exact value, coking coal price surged Yuan 1,018/tonne ($161/t), PCI price gained Yuan 661/t, coke price went up by Yuan 537/t, and scrap price increased by Yuan 432/t, according to the institute, while the seaborne iron ore price fell Yuan 288/t and domestically-produced iron ore concentrates dropped Yuan 159/dmt with both priced against the 62% grade iron ore, the report shared.

Mysteel's related market tracking painted a similar picture, as China's HRB400E 20mm dia rebar price, for example, went up Yuan 460/t on year to Yuan 4,817/t by the end of January, while the gross margin for rebar gained by about Yuan 270/t on year to about Yuan 400/t, or a low level, by the end of last month.

Last month, some Chinese steel mills, nevertheless, might be in a much better situation than the others due to the variation in their raw material procurement practices, as PCI price, for example, could be Yuan 426.5/t lower than the average for the top five mills with the lowest cost, while the bottom five with the highest procurement cost paid Yuan 492/t more than the average for PCI, the institute shared.

The variation in iron ore cost, however, was not as substantial, as the top five with the lowest cost saved Yuan 88-104/t for their seaborne and domestic iron ore procurements, while the bottom five paid Yuan 259-342/t more than the average, CSDRI shared.

The greater consciousness of production cost management and efforts to optimize raw material procurement practices, thus, will be decisive for the competitiveness and profitability of the individual steel mills, according to the institute.

Written by Hongmei Li, li.hongmei@mysteel.com