China’s major steelmakers incurred RMB 1.97bn ($309M) of losses in the January to November period of 2012, said the China Iron and Steel Association (CISA) on Jan. 7. Although the market has shown signs of recovery since October, increasing iron ore prices and sluggish downstream demand continued to weigh on the iron and steel industry.

Wang Qinghai, President of CISA, revealed at the annual meeting of CISA that one third of the major steelmakers were still in deficit by the end of November. Sales revenue of the major steelmakers in the January-November period fell 5.37% to RMB 324.4bn ($50.9bn) due to the gloomy downstream demand. A severe problem of oversupply also added to the situation as it squeezed the profitability of traders and brought down sales.

Profitability is unlikely to improvement in January, despite the major steelmakers raising prices for both December and January as production cost surged in the same period by a greater amount than that of the steel sold. The cost of pig iron production has been growing rapidly since December as ore prices moved higher on increased demand. The Pig iron cost index was 111.2 in December, up 3.2% from the previous month, but the composite index for steel products only rose 2.28% in December.

Adding to the cost increases, the high investment level of the country’s steel sector is also weighing heavily on the profitability of Chinese steelmakers and oversupply is leading to vicious market competition, preventing steel companies from improving their profit margins.

Market trading remained thin after the New Year, which is in contrast to traders’ expectations that market price would jump significantly as major steelmakers had been raising product prices.

Source: China Metals e-mail