China's Steel Industry May Swing Back to Profit on Price Rally

  • Exports seen declining on shrinking supply, stable demand
  • Iron-ore imports by the world's top buyer seen dropping 5%

The world’s largest steel industry may swing back to profit this year as reduced supply and increased demand spur a rally in domestic prices and a decline in exports, the China Iron & Steel Association said.

Even if the industry doesn’t show a profit, losses will narrow to about 10 billion yuan ($1.5 billion), according to a statement on Wednesday from the group which represents the biggest producers in China. The mills posted more than 100 billion yuan of losses in their core business in 2015, the worst year ever, the association said earlier this month.

Steel prices have surged in China this year, with reinforcement-bar futures jumping 40 percent, after policy makers talked up growth, lending boomed and the property market rebounded. The gains have restored mills’ profitability and they are making more money on each ton produced than at any time since 2009, according to Bloomberg Intelligence.

The group sees exports sliding 11 percent to 100 million metric tons this year, which may help ease trade tensions that have flared over China’s steel sales everywhere from India to Europe and the U.S. The association expects average prices in China to climb at least 10 percent in 2016 from a year earlier.

The nation, supplier of half the world’s steel, will make “material progress” in curbing overcapacity this year and apparent domestic demand for steel products may stabilize or rise slightly to 683 million tons, according to the statement. Iron ore imports by the world’s biggest buyer may drop 5 percent to 900 million tons, it said.

The outlook for a recovery in China’s market has fueled a speculative surge in prices of steel, iron ore and coking coal. Futures exchanges have responded with a raft of measures to cool speculation and reinforcement bar prices have slumped almost 10 percent from a seven-month high last week.

— With assistance by Feiwen Rong

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