Although China Iron and Steel Association (CISA) had warned of the expanding losses amid China steel industry in advance, the results published by National Bureau of Statistics embarrassed all Chinese steel mills.

Statistics data disclosed that China steel industry went through 97.5 percent year on year slump in the first four months of 2009, which showed a positive sign of industry recovery comparing with the 99.2 percent plunge in Q1 2009. Declining dropping rate should be attributed to profit increase of small steel mills instead of the extending losses in large and medium sized steel mills.

Data from CISA unveiled CNY5.179 billion losses amid 72 large and medium sized steel mills monitored by CISA in the first four months of 2009 (39.73 percent steel mills ran into losses), compared with CNY63.401 billion profit in the corresponding period last year.

In Q1 2009, large and medium sized steel mills witnessed CNY3.308 billion loss, the losses of the first two months were CNY1.511 billion respectively, March CNY1.797 billion, April CNY1.871 billion, monthly loss is on the rise, indicating a deteriorating operation of large and medium sized steel mills.

On contrary, small steel mills, got into loss in H2 2008, benefited from the 4 trillion yuan stimulus package, longs producers gained great profits, while flats manufacturers post huge losses.

Despite of overwhelming losses of large and medium sized steel mills, Chinese steel enterprises did not cutback production. Data from National Bureau of Statistics showed that crude steel production of the first four months (170 million tons) annualized 519 million tons in 2009, a significant oversupply.

Crude steel output might possibly expand in May, in the first ten days of May, daily crude steel output annualized 537 million tons of the whole year, a historical high.

Rio Tinto subsidiary Hamersley Iron has today reached agreement with Japan’s Nippon Steel Corporation on the price for Hamersley iron ore deliveries for the contract year commencing 1 April 2009.

Under this agreement, the new prices for Hamersley products will be:

Pilbara Blend Fines
US cents 97 per dry metric tonne unit

Yandicoogina Fines
US cents 97 per dry metric tonne unit

Pilbara Blend Lump
US cents 112 per dry metric tonne unit

Rio Tinto Iron Ore chief executive, Sam Walsh said: “Rio Tinto is pleased to reach this agreement today with Nippon Steel Corporation, Japan’s leading steelmaker.

“We believe this settlement is a realistic outcome for both parties – one that reflects the global market for iron ore and the current challenging market conditions facing our customers.”

It is reported that losses for Chinese steelmakers are worsening, and China Iron & Steel Association said that losses for 72 large and medium sized steel firms posted at CNY 1.87 billion in April with mills posting red ink increased by 4 from March.

The steel association said the low steel price is the main reason behind the loss, since it has fallen to 1994 levels. And insiders have diverged over the price trend in future.

1. Mills Suffer CNY 1.87 billion loss in April

Mr Luo Bingsheng vice-chairman of CISA said Chinese steel mills suffered a combined loss of CNY 5.179 billion in the first four months of this year versus the nice gain of CNY 63.401 billion in the corresponding period of last year. He said that totaling 29 steel producers have incurred losses in the month up 4 mills from the month before. And Baosteel president speculated at last weekend that China mills may post loss for whole 2009 in light of the persisting excessive supply.

2. Steel Prices touch new low

Mr Luo said China’s composite steel price index posts at 95.56 by late April off 34.76% or 50.92 from 146.48 posted by the end of April 2008. He said that “The overall price trend is heading downward.”

And according to the vice chairman the mounting up supply is the root cause for the supply outstripping demand amid the faltering consumption.

3. Prices May Move up later amid Demand Pickup

Mr Luo said despite the low steel prices, Mr Luo still holds a bright view about future trend. China’s steel prices would claw back some losses amid the picking up demand stimulated by Beijing’s economic recovery packages.

Mr Li Xinchuang from China Metallurgical Industry Planning & Research Institute said “Beijing’s efforts have taken effects, this coupled with the midseason in May and June would push up steel demand considerably in future.”

CISA data shows the apparent crude steel usage in the first four months posted at 170 million tonnes up by 6.92% or 11.03 million tonnes from a year ago.

Mr Nie Xiuxin analyst from Ping’an Securities noted that “Monthly apparent steel use in March and April is 10 million tonnes higher than that in February reflecting the picking up of down-steam demand.”

He said that “The high stocks pressure was also eased by the rising demand, with inventories at steel mills by late Mar registering at 8.25 million tonnes down 0.9% from last month and making up 26.2% of total production.” The figure is approaching normal levels.

Mr Xu Xiangchun senior analyst of Mysteel.com said it is merely a midseason driven demand rebound, and it is not confined to pick up in the second half. He said that “Steel prices would linger at low levels in late market since there is no upward momentum for prices to head upward.”