`Economic Irrationality' Can’t Last in Steel, Top Mill Says

  • Prices have dropped excessively, Tokyo Steel's Imamura says
  • It will take some time before market recovers, executive says

Japan’s biggest steel producer from scrap iron has called the bottom of the global market, saying prices probably won’t extend declines much further as loss-making mills have to confront their commercial limits.

“Economic irrationality won’t last forever,” Kiyoshi Imamura, managing director at Tokyo Steel Manufacturing Co., told reporters in Tokyo on Monday. Prices have dropped excessively, falling beyond the appropriate level in terms of profitability, according to Imamura.

The global steel industry is reeling from the impact of excess production as Chinese demand shrinks for the first time in a generation, crushing prices and profits. Commodity supplier Noble Group Ltd. said last week that mills in the country were losing about $50 on each ton, and warned that it expected output to slump next year. China accounts for about half of global supply.

While prices are unlikely to slide much further, it will take some time before they recover, according to Imamura. Tokyo Steel on Monday maintained the price of its hot-rolled coils at 53,000 yen ($433) a metric ton and also kept unchanged H-beams at 70,000 yen a ton for December contracts.

Prices Retreat

Hot-rolled coil in China, a benchmark product, has collapsed to a record after dropping for the past four years, according to Beijing Antaike Information. The price fell 39 percent this year to 1,829 yuan ($287) a ton on Friday.

Nippon Steel & Sumitomo Metal Corp. and JFE Holdings Inc., Japan’s top producers, last month cut profit forecasts for this financial year as the global glut squeezes margins. Facing lower demand at home, mills in China are selling record amounts overseas, boosting competition and raising trade tensions.

There have been moves by some Chinese mills to cut production, with blast furnaces being idled, according to Imamura. Crude-steel output in China fell 2.2 percent to 675.1 million tons in the first 10 months of 2015 compared with the same period last year, the National Bureau of Statistics said last week.

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