Steel producers in China are facing serious financial problems according to The Economic Times
China's steel industry faces a "cost crisis," as dropping demand for steel drives prices below the cost of raw materials, a senior adviser to the China Iron and Steel Association (CISA) said on Friday. Spot iron ore prices have dropped below term prices for the first time in years, as steelmakers bank blast furnaces to avoid producing steel for a higher cost than they can sell it.
"Chinese steel mills are facing a cost crisis. Almost all Chinese mills are suffering losses on the base of current steel prices and long-term iron ore prices this year," Wu Xichuan told an industry conference in the Chinese port city of Qingdao.
The balance between production costs and selling prices is going to be a problem for all steel producers around the world until demand lifts. The major European producers are adopting the strategy of reducing production to try and maintain steel prices. The problem with this strategy is that as output is reduced the effective "cost per ton" increases. If demand still falls below the reduced availability then the strategy will fail. Whilst the reduced demand will presumably lead to lower raw material costs it's hard to see how the steel manufacturers can hope to make a profit in these times, but then again that's a problem that many steel users have had to face during a year of record steel price increases.
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