Raw material prices fell due to pomarket sentiment, this news was welcomed by domestic steel mills traders who are looking frelief from high costs

 

According to the abovet, profits of hot-rolled coils during August were the lowest of all products, followed by rebar. Profits fell further from July levels, leaving most products in the sectshowing losses.

 

 

Production costs fhot-rolled products began to drop following raw material price declines, but profits in the sectcontinued to shrink, as shown in the abovet. Continuous declines in market prices were blamed fshrinking profits. Prices of hot-rolled products experienced the biggest price drop during August, dropping to RMB 5,180/mt from RMB 5,800/mt in early August, down RMB 620/mt. Although costs fsteel production dropped as raw material prices declined, the decreases in costs failed to offset losses from weakening market prices, dampening profits further. Most mills traders dealing in hot-rolled products were operating at a loss.

 

Faced with pomarket performance in the sector, domestic steel mills cut production traders reduced purchases during August. Downstream dembegan to recover during September, but soaring finished steel prices has had a significant negative impact on demfrom downstream producers, with many forced to cut suspend production. The Central Government has not issued any relevant policies to support these downstream producers, in this context, downstream demfhot-rolled coils will likely drop during 2H08 compared with the same period of 2007. Overall demremains weak there is a possibility of raw material prices fmills will remain high in the short-term. CBI believes the majority of steel mills traders will continue to post losses during September.

 

 

 

According to the China Iron Steel Association, as well as CBI statistics, China’s output of color-coated sheets/coils totaled 2.06 million mt during the first seven months of 2008, up 14% YoY, but output growth rates were vastly different depending upon region. With a large number of re-rolling plants in Shandong province having capacities of 50kt/yr, output from that region is easily affected by market changes. At the larger plants, as costs rose prices fell, many halted cut production as profits shrank, causing output in Shandong province to plunge by 71.1% on a yearly basis despite an increase in China’s total output on a YoY basis,

 

 

However, other majdomestic producers of color-coated sheets/coils are in Jiangsu, Zhejiang provinces, Shanghai, output from these three regions accounted fmore than 50% of total output, with Shandong province contributing less. In this context, fluctuations in output from Shandong producers will have only a limited impact on total output, but the decline in operating rates at re-rolling plants is an indication of slim profits in the color-coated sector.

 

 

 

 

Price of all varieties of finished steel has experienced wide price fluctuations since the beginning of 2008. The sole exception is ship-building plates, prices fwhich have remained firm, due in large part to the booming shipbuilding industry.

 

 

The abovet shows price trends of flat products from January to August 2008. According to thet, prices of flat products kept pace with rising raw material prices, but the trends reached a turning point in June due to rapid price rises weak demduring the slow demperiod. As of August, prices of ship-building plates were the most stable among all of flat products, attributed to the booming ship-building industry in China.

 

According to a CBI survey of downstream machinery manufacturing, home appliance, shipbuilding industries, operating rates in the shipbuilding industry was the highest level among the three. Home appliance machinery manufacturers had to halt reduce output inder to cut production costs. They still reported losses due to weak demthe inability to pass rising costs on to consumers. The shipbuilding industry, however, is booming, many shipbuilding enterprises have fullder books, creating strong demfshipbuilding plates, as well as M&H plates, which reported only moderate declines in price.