Steel stocks in China’s key steel companies stood at 11.49Mt at the end of May, down 8.5% from a month earlier, but rose 34.3% from that at the beginning of this year. The high stocks indicated the weakening demand from the downstream sectors.

It is crucial for domestic steel companies to accelerate the process of de-stocking and de-stocking has picked up since the beginning of June as steel traders in the country become cash hungry as commercial banks have been alerted by the Central Bank to the risks of bad loans in this sector.

Steel sector’s profits also slipped sharply. Steel producers saw profits down 49.5% from a year earlier to RMB39.5bn (US$6.2bn) in the first four months 2012. Steel price also fell in May, as the country’s average steel composite price index fell 17.28 points from last year to 118.76. The figure was also 2.76 points lower than the previous month.

One good point for mills was that the price of iron ore and coke fell the beginning of this year which helped to substantially reduce production costs.

Mills have been stepping up production believing the cam make up for losses last year when prices of raw materials were higher. However, this undermines the cost obtainable on finished products. A round of price increases in April used to be regarded as a sign of bottoming of the steel market, but it turned out to be a very short-lived this year with prices falling again in May.

Source: China Metals e-mail infochn@public.bta.net.cn