About two thirds of China's major steel mills were in the red in November, suffering from high prices in raw materials and the decreasing prices of steel products.

Forty-eight out of 71 large and medium-sized domestic steelmakers saw a loss in November (six more than in October), with total losses for the month in the neighborhood of 12.77 billion yuan, China Securities Journal reported yesterday citing anonymous sources.

Analysts largely contributed the loss to high iron ore prices and dropping steel prices, and they remained pessimistic for the mills' performance in December.

Chinese steelmakers agreed to pay a record of $92 per ton for iron ore in the 2008 long-term contract, and steel prices have dropped about 40 percent since June as a result of the global financial crisis.

Hu Kai, analyst with steel information portal Umetal.com, said the 64 million tons of iron ore stocks in China's harbors mean a loss of 25-30 billion yuan for Chinese mills and traders because iron ore prices in the spot market have sharply decreased.

Authorities are considering measures including buying some steel products for reserves to help the industry through the rough time, Minister of Industry and Information Technology Li Yizhong recently said in Beijing.

Reports said the government would likely spend 10-15 billion yuan to establish a reserve of 3-5 million tons.

Some major steelmakers have increased steel prices on the news.

Angang Steel will raise the price of hot rolling steel by 350 yuan per ton from January; Shougang Group will raise by 300 yuan per ton and China's largest steelmaker Baosteel will also raise product prices by 6 to 10 percent from February.

Analysts said building up stocks may provide some support to prices in the short term, but the policy could also mean producers take longer to emerge from the current slump in demand with a U-shaped recovery rather than a V-shaped bounce, since the government stocks may return to the market as prices recover.

The government could also increase export tax rebates on high-end steel products and will encourage industry reshuffling as well as innovation.

(China Daily December 30, 2008)