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Not so good:
China’s steel mills have clicked into a higher gear, with production climbing from a year earlier as a credit-fueled property boom drives domestic demand. Crude-steel output totaled 603.78 million metric tons in the first nine months, up 0.4 percent from a year ago, according to data from the statistics bureau on Wednesday. Supply was 68.17 million tons last month from 68.57 million in August, and was up 3.9 percent from a year earlier, the data showed. After the nation’s mills churned out less steel on year in 2015 for the first time in more than three decades, predictions were widespread that output would post a significant drop this year. Instead, the country that supplies half the world’s steel has fired up plants as policy makers added stimulus, boosting demand, and a price rebound restored profitability.
Chinese Steel Mills Defy Calls for Cuts as Production Rises - Bloomberg
Although the reasons for the slight increase in production are itself a positive:
“Investment in real estate and infrastructure sectors has been much better than we expected,” Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd., said by e-mail. The bank’s predicting that Chinese production will rise 3 percent this year, reversing a forecast made at the start of 2016 for a 5 percent drop.
Chinese Steel Mills Defy Calls for Cuts as Production Rises - Bloomberg
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Chinese steel prices showed strength in October, as you can see in the above graph. Higher Chinese steel prices would support steel prices in other regions including the US. However, higher Chinese steel prices are more a reflection of rising input costs rather than any real change in demand-supply dynamics. The above graph shows the movement in Chinese HRC (hot-rolled coil) prices plotted against benchmark iron ore prices. As you can see, the two have generally been moving in tandem with each other. Steel prices in China have also risen this year along with the upward movement in iron ore prices. It isn’t surprising because Chinese steel mills rely heavily on seaborne iron ore. The country accounts for two-thirds of seaborne iron ore demand.
Would Rising Chinese Steel Prices Support US Steel Pricing? - Market Realist
A proposed merger between two of China's largest steelmakers, Baosteel Group and Wuhan Iron & Steel Co (Wisco), is a case in point. Party leaders see this type of mega merger - in keeping with the Ministry of Finance's announcement in May of adopting a "combination of tax, accounting, and land administration policies to support mergers and acquisitions" - as a crucial cog in the wheel of crafting 'national champions'; tackling overcapacity; profiting from economies of scale; and eliminating "malicious competition". Combined, the two will become the world's second largest producer behind ArcelorMittal (NYSE:MT), with a total worth of $16.3 billion and an annual production of some 60 million metric tons per year and would be able to stem excessive production.
Or so the planners would have you believe. In fact, this odd union fails to address the key concerns of overcapacity: under the anticipated deal, Wisco, who chalked up a whopping 7.5 billion renminbi loss in 2015, will not be merged into Baosteel, a much more robust entity which posted a 710 million renminbi profit during the same year. It will instead become a separate subsidiary reserving self-governance at all levels. Instead of capitalizing on cost cutting measure and diversification, the deal is creating a more complex and indebted entity with little or no hope in curbing excess capacity.
Not What The Doctor Ordered: Pulling The Plug On Chinese Zombies | Seeking Alpha
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Though ArcelorMittal's (NYSE:MT) mining segment, which includes iron ore, is only a small portion of its revenue, it is set to deliver strong EBITDA growth going forward. An improvement in iron ore prices due to robust demand in the U.S., coupled with the company's cost reductions, will play a key role in helping ArcelorMittal improve its performance in this segment. More specifically, last quarter, ArcelorMittal got just under 6% of its revenue from the mining segment at $809 million, but it accounted for almost 11% of its EBITDA. In fact, last quarter, ArcelorMittal's mining EBITDA grew 42% year-over-year, while for the first nine months of the year, the segment's EBITDA has increased 25%. This growth in the mining segment's profitability can be attributed to the rapid rise in iron ore prices.
ArcelorMittal: Don't Miss This Key Catalyst - ArcelorMittal (NYSE:MT) | Seeking Alpha
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Iron ore spot markets exploded higher on Tuesday, logging the largest one-day gain in over four months. And with Chinese futures holding much of its earlier session gains overnight, it suggests the bounce may well continue on Wednesday. According to Metal Bulletin, the spot price for benchmark 62% fines soared 5.2% to $59.70 a tonne, marking its largest one-day percentage increase since February 13 this year. The benchmark has now gained in eight of the past nine sessions, adding 11.9% in the process. Making the gains all the more remarkable, the surge in buying interest followed news that Chinese iron ore port inventories rose to a record high of 141.45 million tonnes last week, according to data from Shanghai Steelhome. The gains in spot markets followed renewed strength in Chinese futures earlier in the session.
Iron ore prices are exploding higher | Business Insider
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