Steel Pressured by Declining Profit Margins

Steel rebar futures traded around CNY 3,105 per ton, hovering close to two-week lows as profitability across China’s steel industry continued to deteriorate. Industry data showed that only around 30% of steelmakers were profitable as of September 4, down from 32.5% a week earlier and 61% during the same period last year. Meanwhile, China’s blast furnace utilization rate declined 0.48 percentage point week-on-week to 89.08%, while average daily pig iron production fell by 5,200 mt to 2.4028 million mt. Despite the weak fundamentals, investors expect steel consumption to improve on seasonal demand amid the peak construction period in September. In other news, China Mineral Resources Group, the country’s state-owned iron ore importer, has reportedly instructed several steel mills to avoid purchasing Rio Tinto Group’s Pilbara Blend ore.

Steel rebar futures in China held above CNY 3,110 per ton, hovering near twelve-week highs even as rising raw material costs deepened losses at steel mills, though stronger steel exports provided support. Industry data showed that the average cost of hot metal and steel billets at major mills in Tangshan rose sharply last week, pushing average losses to more than CNY 100 per ton. China’s non-manufacturing PMI, which covers services and construction, also held steady at 49.0, matching July’s reading and remaining at its weakest level since December 2022. Meanwhile, China’s total steel exports rose 7.8% week-on-week to 2.55 million tons in the week to August 31, marking a third consecutive weekly increase and the highest level in nearly eight weeks. Investors are also anticipating a recovery in steel demand due to seasonal factors ahead of the September peak construction season.

Steel rebar futures fell to around CNY 3,100 per ton in early September, pulling back from multi-month highs as surging oil prices heightened inflationary risks and reinforced expectations of imminent interest rate hikes, weighing on the demand outlook. Higher rates could eventually slow global economic growth, dampening demand for industrial metals. Meanwhile, steel prices rallied sharply in August as investors anticipated a recovery in demand due to seasonal factors ahead of the September peak construction season. China’s National Development and Reform Commission also reportedly held meetings in recent weeks, urging local governments to accelerate the construction of major projects. However, China’s non-manufacturing PMI, which covers services and construction, held steady at 49.0, matching July’s reading and remaining at its weakest level since December 2022.