Chinese steel makers are expected to see profit continue to slide this year, with a reasonable range of 100-400 yuan/t, said Shi Tou, vice director with Hicend Futures Research Institute, on May 22.
Profitability is a key factor for steelmakers to adjust production and operation plans, he said, and profit of electric furnace steel is particularly significant.
As of May 21, gross profit of long-process steel was 145 yuan/t, while short-process steel suffered a loss of 28 yuan/t, and futures profit was 307 yuan/t.
On the supply side, iron ore prices remained at a high level. As of May 20, the Platts index was around 96, and the price of Qingdao iron ore continued to rise.
Stockpiles of the raw material were low, he said. As of May 15, iron ore stocks at China's 45 ports totaled 111 million tonnes, diving down to a nearly four-year low. Statistics showed imported powder sintering ore stocks at 64 sample steel mills were 16.13 million tonnes, also at a low level.
"Low port stocks and steelmakers' stocks, robust demand and large basis make iron ore a popular material among ferrous products," he added.
This has been raising production cost for steel production and may continue to squeeze profit margins of steel.
Meanwhile domestic real estate sector has been bearing huge pressure since early this year, Shi Tou said. A yearly decline of 26.3% was observed in accumulative sales in the sector in the first quarter this year. "The figure indicates that housing sector is facing tougher sales issue this year," he added.
The analyst pointed out market supply-demand fundamental will play a bigger role since the structural supply-side reform has a dwindling effect on steel industry, and steelmakers will take various ways to adjust profit, like futures and other financial tools.
At current development stage, domestic steel market will have demand as a major drive in a relatively long period to come.
(Writing by Tammy Yang Editing by Jessie Jia)
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