Many steel companies involved in high-cost mines fell into a huge loss in the fourth quarter

Although the price of iron ore in the fourth quarter had a downward trend, the high ore prices in the first three quarters had swallowed up a lot of profits from steel companies. In the first quarterly report of the steel industry that was released last week, both Laiwu Steel and Jinan Steel suffered losses, and the high iron ore price was the culprit.

According to the latest report released in the third quarter, due to high iron ore prices, Laiwu Iron and Steel and Jigang's operating performance in the third quarter has been greatly affected. Among them, from July to September, Laiwu Steel's net profit was - 233 million yuan, and Jinan Iron & Steel's net profit was -189 million yuan.

In fact, benefiting from the increase in steel prices over the same period of last year, from January to September this year, Laiwu Steel achieved an operating income of RMB28.635 billion, a year-on-year increase of 42.61%; Jinan Steel's operating income increased from RMB187.76 billion last year to RMB23.803 billion. Moreover, both companies achieved profitability in the first nine months of this year. However, it cannot be overlooked that the rise in iron ore prices offset some of the profits that steel prices have brought to companies.

While also subject to higher ore costs, the loss of the first three quarters of Valin Steel reached 1.4 billion yuan. Valin Steel said that the main reason for the huge loss was its operating subsidiary Hunan Hualing Wuyuan Iron & Steel Co., Ltd., which suffered operating losses. It is reported that Valin Steel has many operational problems in recent years, including difficult to control the cost of ore prices. Due to the failure to properly handle the long-term supply relationship with overseas iron ore suppliers in the past two years, the long-term proportion of the company has decreased to about 40% year-on-year, and the cost of iron ore is obviously higher; at the same time, In the second quarter, iron ore purchased a large amount of iron ore at the highest price during the year and was used in the third quarter, affecting the cost of iron ore in the third quarter.

In the fourth quarter of this year, although the price of ore may fall by 10% to 15%, it is still at the high level of US$125-132/ton, and steel companies still have a difficult operation. Among them, the most fundamental issue is the imbalance between supply and demand in the steel industry, coupled with the fact that the global economic situation has not fundamentally improved, and steel export pressure remains high.

"If domestic demand does not pull up again, a 10% decline in mine price alone will not save the steel company," said Lange Steel analyst Zhang Lin. An industry expert who declined to be named also pointed out that iron ore prices have soared before the quarterly price decline. Even after falling prices, iron ore prices will remain nearly 120% higher than last year's level. Therefore, in the fourth quarter of this year, Chinese steel companies must continue to bear the high costs of iron ore, and on the other hand, they must also face headaches for downstream consumption in a high inventory environment.