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Steel Margins in China May Shrink on Weak Demand, Mirae Says

Profit margins of steelmakers in China may shrink as a demand recovery falters and iron ore prices gain, a Mirae Asset Securities (HK) Ltd. analyst said.

Reinforcement bar prices in the local market may remain at 3,700 yuan to 3,800 yuan a metric ton in the near future, while iron ore and coking coal prices will continue to rise, Mirae’s Shirley Zhao said by phone from Hong Kong. The profit margin on the bars is now about 200 yuan ($32) a ton, compared with a loss last month, she said.

“Steel is lacking an upward momentum as there aren’t any signs of a strong recovery and traders are still having difficulty borrowing money to expand stocks,” Zhao said, citing discussions with the traders. “Iron ore prices may keep rising until they are unaffordable.”

Spot prices of steel rebars, used in buildings, have risen 12 percent to 3,806 yuan since Sept. 7, when China announced plans for higher infrastructure spending, according to researcher Beijing Antaike Information Development Co. China’s economy probably grew 7.4 percent in the third quarter from a year earlier, the weakest expansion since the first quarter of 2009, according to the median forecast in a Bloomberg survey.

Ore with 62 percent content delivered to the Chinese port of Tianjin has gained 29 percent to $114.50 a dry ton since Sept. 7, according to a gauge compiled by The Steel Index Ltd.

China is scheduled to report gross domestic product, fixed-asset investment, retail sales and industrial output on Oct. 18.

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