A year ago you could not give steel mills away. Well, almost. Consider Tata Steel, the Indian owner of a number of then lossmaking steel plants in the UK. It decided it wanted out at any price. One reason: the world’s largest producer, China, was increasing steel exports, depressing prices. Fast forward to this year and steel has moved to portfolio managers’ buy lists.
Whereas China took the blame before, it gets credit for a steel price boom. Its steelmakers cut output, though only by necessity. Chinese mills in the fourth quarter of last year lost money on every tonne of commodity steel produced. Hot rolled coil lost the average plant Rmb200 ($29) a tonne. Mills stopped making steel. Roughly twice as much blast furnace capacity (150m tonnes) underwent maintenance during the first quarter of 2016 compared with 2015, notes Credit Suisse, thereby reducing supply.
Meanwhile, demand had improved. During late 2015, Beijing opened its wallet for new, steel-hungry infrastructure projects to boost the flagging economy. In renminbi terms this spending had dipped year on year in the first half of 2015, according to CEIC data. By the beginning of 2016 a surge in infrastructure spend had begun, up as much as 40 per cent from the previous year. More demand with reduced capacity lifted local prices; exports slowed. Dull metal suddenly shone, as profit per tonne jumped to Rmb1,000. Chinese steelmaker Maanshan’s shares are up by roughly half this year. In Europe, shares in Amsterdam-listed producer ArcelorMittal have doubled.