It is predicted that China’s steel enterprises and traders will continue to suffer from low profitability, though steel price may rise in the future.
A Chinese market player said “From now on till the New Year’s day, Chinese steel market will not be able to go up sharply, as it is greatly influenced by stock market and futures market.”
The rising cost
Energy conservation and production reduction policy have influenced not only steel enterprises but also mines. As a result, the production of iron ore has also been declining, which can be directly linked to the rising production cost of steel in China’s domestic market.
The potential of rising production
No steel enterprises are reducing production voluntarily. Just to the opposite, they are forced to do so. At the same time and the China’s central government try to eliminate backward production capacity, newly increased production capacity is also on the speedy track. Therefore, overall production will not been reduced much.
From the price chart of steel market this year, we can see that the fluctuation margin is only 17.2%, quite rare compared to the average 30% in previous years. This means the profit margin for steel traders is much narrower.