If you caught Stuart’s earlier piece on the economic difficulties facing China, you might not be surprised to learn about the weak outlook for Chinese steelmakers. Reportedly, the first half of the year played out well for leading steelmakers in the region: “As per the news from the China Iron and Steel Industry Association, the first half of this year, Baoshan Iron and Steel Group get profit CNY 28.664 billion an increase of 28.5%, and more steel listed companies also estimate that they [will] profit in the first half [of the year].” However, slowdown is expected in the second half of the year. As property and banking stocks in Shanghai and Shenzhen began to drop earlier this month, steelmakers weren’t far behind, and shares should keep tumbling. According to the Wall Street Journal, Chinese steelmaker Angang Steel fell 8.1% in Shenzhen and nearly 12% in Hong Kong.
Not only is supply and demand expected to waver during the second half of 2008, leading to surplus in the steel market, but it has also been reported that production costs have more than doubled for Chinese steelmills due to record prices for raw materials, particularly iron-ore. A key ingredient for steel, iron-ore has seen price increases of about 65% recently, as Vale can attest. This has already caused China to call for controlled iron-ore imports. SteelGuru shares, “Statistics show that production costs for steelmaking pig iron increased by 57.57% on average in the first half for domestic large and medium steel mills … Purchase price for per tonne coal injection increased by 36.85% YoY, coking coal by 62% YoY, metallurgical coke by 82% YoY, imported iron ore imports by 54% YoY and domestic iron ore by 95% YoY.” Stay tuned for more information from MetalMiner as the latest quarter progresses.