Chinese steel mills remain cautious about iron ore procurement

Although steelmakers in more regions of China have churned out more hot metal recently, they continue to adopt a prudent approach to iron ore procurement as their financials remain poor, Mysteel Global has learned.

Higher operational rates at blast furnaces were observed among some mills in North China's Hebei and East China's Shandong last week, as reported. Industry watchers explained that the larger declines in prices of steelmaking raw materials had outpaced those in steel prices, which encouraged some mills to lift output to enjoy the thin steel margins while they lasted.

This ended the four-week dip in hot metal production among the 247 Chinese steelmakers under Mysteel's regular watch, with output rebounding by 0.3% on week to an average of 2.21 million tonnes/day over March 15-21, the latest survey showed.

Also, through it might be slow, a seasonal increase will probably be seen in mills' hot metal output in coming weeks, market sources suggested, as spring construction activity picks up. Mysteel also predicted that output at the sampled 247 mills could climb to 2.25-2.26 million t/d on average in April, even though this will be lower than the level of 2.45 million t/d during the same period last year.

Nevertheless, most steel mills continue their previous practice of only procuring iron ore in small quantities and in multiple batches.

The mills that lifted output simply seized the rare opportunity afforded by the positive steel margins to lift their production, even though they were pessimistic about any recovery in domestic steel consumption in the short term, a ferrous analyst in Shanghai said to explain the steelmakers' slow buying of ore.

As a result, the stocks of imported iron ore sintering fines held by the 64 Chinese steelmakers included in Mysteel's survey shrank by 6.7% on week to 10.8 million tonnes as of March 27.

The stocks were enough to cover 22 days of usage at the 64 mills' current daily consumption rate, two days shorter than the prior week's level, the survey results indicated.

Given the slow rises in steel output and end-users' limited interest in consuming steel, China's iron ore prices remain depressed, Mysteel Global noted.

For example, Mysteel SEADEX 62% Australian Fines sat at $101.25/dmt CFR Qingdao on March 27, losing a total of $5.4/dmt from the prior week.

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.