Steel producers face bleak months ahead

Industry experts say 83 percent of firms losing money as prices continue to fall

China's steel prices fell to 3,684 yuan ($585) a metric ton on Wednesday, their lowest level since late 2009, and senior officials said the fourth quarter will be even more difficult for the industry.

Steel prices are now dropping at a daily rate of more than 15 yuan a ton, said Zhu Xian, a senior analyst at the industrial consultancy Mysteel.

He predicted that the price will have fallen by another 50 yuan a ton by the end of Friday.

A steel pipe factory in Haimen, Jiangsu province. According to the China Iron and Steel Association, its member companies had a daily output of 1.63 million metric tons in early August. [Photo/China Daily]

"Steel prices have now come back to the same level they were at in October 2009," added Wang Guoqing, deputy director of Lange Steel Information Research Center, an industrial consultancy based in Beijing.

China's steel inventories were 14.87 million tons on Aug 24, 380,900 tons less than the previous week, which represented the fastest drop in several weeks, according to Lange's market monitoring system.

However, crude steel output is still increasing.

According to the China Iron and Steel Association, its member companies had a daily output of 1.63 million tons in early August, an increase of 1.24 percent compared with late July.

The real estate industry, a key factor in China's steel demand, experienced slower investment growth in the first half of 2012.

China's investment in real estate totaled 3.68 trillion yuan in the first seven months, a 15.4 percent increase year-on-year, but 1.2 points down compared to the first six months of the year.

During the first seven months of last year, the investment growth rate in the real estate industry had been 33.6 percent.

"Downstream demand for steel products is still uncertain and is unlikely to rebound in the short term," said Ji Xiaoyun, an analyst at Lange.

"The central government's controls on the real estate industry are still tight, which indicates it will not contribute much more than it currently does to steel demand. But it is worth noting, August is the traditional weak season for steel prices."

She said major domestic steel companies have all cut their product prices by an average of 10 yuan to 30 yuan for September to adjust to market conditions.

Gao Cheng, sales manager at Tangshan Liangang Steel Rolling Co Ltd in Hebei province, among China's largest steel companies, told China Daily: "Many steel mills have stopped production for maintenance in Tangshan."

He said his company still has a daily output of 25 million tons, which he considers a good performance.

Xu Xiangchun, an analyst at Mysteel, said that only 60 percent of producers of construction steel in the city are currently producing.

"At the beginning of this month, the figure was 66 percent," he added.