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Print[Ferro-Alloys.com] Several Chinese steel mills have plans to reduce their spot iron ore import volumes and maintain lower inventory levels, as steel demand remained lackluster and losses plagued end-users, several mill sources said.
Iron ore is the primary raw material used in steelmaking for blast furnace operators.
"We're planning to cut spot iron ore imports by about one to two Capesize vessels, or about 300,000-350,000 mt, a month," a source at a major Beijing-based steel mill said.
He added that they were keeping about a month's worth of iron ore stock now, down from the 1.5-2 months' they usually have. But if the market continued worsening, the mill is prepared to cut inventory levels to two weeks.
A Hebei-based steel mill that purchases iron ore completely from the spot market said they had plans to reduce import levels, but would not comment on the specific volume that would be cut or when this cut might take place.
Another steel mill based in the province of Hunan laid idle a 1,080 cubic meter blast furnace early last month and was planning to restart the furnace July 21.
"As China construction activities slow down, it is difficult to move our steel products to the buyers. In fact we have been producing at 80% capacity since April," said a source from the mill.
The source also added that they were now mulling whether a production cut to minimize losses or pushing up production to full capacity to enhance cash flow was the right strategy to adopt.
"Steel fundamentals remain weak in the short run, and our focus now is not to make profits but to minimize losses," said the mill source.
A Singapore-based trader said the second quarter earnings reports of Chinese mills showed a very poor performance and with most making losses, it was not surprising that buying interest was low.
Not all mills had definite plans to push raw material spot volumes down, but most said this was a possibility they had to consider in the near future, tracking a weakening steel market.
Anshan-headquartered and Liaoning-based steel mill Angang Group had yet to cut its iron ore import spot volumes, but said it might be a possibility if the market continued to decline.
"Angang is placing more control over inventory levels and are trying to push levels down, just like most other mills in China," a source close to the matter said.
The source added that they were only procuring spot material as and when they needed it for production and were keeping inventory levels low.
The mill currently is maintaining about a month's worth of iron ore stocks.
Similarly, Anhui-based steel mill Maanshan Iron & Steel said it had no plans to cut spot or long-term contract volumes yet, but would have to "wait and see" what would happen, especially since it did not see much optimism for the iron ore market for the rest of the year.
"Even if the Chinese government comes up with more growth initiatives, they won't have the magnitude and impact as they did back in 2008," a company source said.
Steel, most commonly used in building projects, has a close relationship with the construction and real estate industries. But sources said government initiatives targeting growth, such as the second lowering of the Chinese central bank's interest rates, had not given those industries the boost they need, and hence had failed to lift steel demand and margins.
China imported 58.3 million mt of iron ore in June, a 9% decrease from the month before.
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