Steel mill margins in China have continued a weak trend into this week, as domestic steel prices fell amid weaker iron ore and raw materials prices and curbs on speculation in the futures markets.
Platts MVS China Domestic Steel Mill Margins have more than halved for hot-rolled coil and rebar apiece, after hitting year-to-date peaks in late April.
Platts MVS margin for HRC fell to $65.03/mt on Monday, from a high of $149.45 on April 21. For rebar, the margin contracted to $55.84/mt, from $138.33/mt on April 26.
Platts MVS margins are based on a four-week gap with raw materials prices to take into account steel-to-pig iron conversion and usage of stockpiles in the chain.
Therefore, the benefit of current lower iron ore prices is yet to pass through to indicative steel margins.
"The biggest impact on the steel mill margins has been the drop in steel prices, with domestic rebar down $61/mt from May 3," said Miriam Falk, senior analyst at Platts MVS.
"The falling steel mill margin is further exacerbated by the rise in raw material prices that we had been seeing until recently. Given the procurement lag in the cost calculation, it seems the full effect of the price rise in iron ore and met coal has yet to hit total costs."
Platts MVS methodology for raw materials will see total raw material costs add at least another $10/mt over the next four weeks before falling back again in line with current lower iron ore prices.
Platts assessed China domestic HRC prices with VAT Monday at Yuan 2,665/mt ($409/mt), down from Yuan 3,250/mt on April 21. Chinese rebar prices with VAT fell to Yuan 2,595 Monday, down from Yuan 3,160/mt on April 25.
Platts MVS China Domestic Steel Mill Margin spreads provide a detailed interpretation of raw material and other costs against finished steel prices, adjusted for VAT and daily currency conversion.
The spreads showed negative margins in November and December, with current underlying profitably still an improvement from levels seen in the first quarter.
Source: Platts