China Steel Mills Defy Global Calls for Cuts as Output Rises

19 October 2016

Chinese mills are producing more steel than a year earlier as a credit-fueled property boom drives domestic demand, defying calls for curbs to supply that has flooded world markets.

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 show 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 improved profitability.

“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.

Data on Wednesday showed China’s gross domestic product expanding 6.7 percent in the third quarter from a year earlier, matching the government’s target of 6.5 percent to 7 percent. The stabilization gives scope for a policy shift toward reining in financial risks as rampant credit growth fuels a surge in property prices in the biggest cities.

The September output implies that Chinese apparent steel consumption jumped 9 percent from a year earlier, the strongest rate so far in 2016, RBC Capital Markets said in a note on Wednesday. On a year-to-date basis, demand is little changed, analyst Ioannis Masvoulas wrote.

Steel output will probably stay high as consumption typically rises in October, the China Iron & Steel Association said in a note on its website last week. As winter approaches and the country steps up efforts to cut overcapacity in its steel sector, production will probably fall over time, the group said. Rebar futures in Shanghai have surged 39 percent in 2016 after five years of losses.

The output increase comes in the face of calls for a reduction in supply that has hurt producers from India to the U.S. The deluge has spurred protectionist moves from rival mills, and drawn attention from Group of 20 leaders, who’ve pledged to address overcapacity. China’s exports in the first nine months were up 2.4 percent on year at 85.1 million tons, the highest ever.

The property rebound has also stoked a rise in aluminum output to the highest level in more than a year as new and idled plants were fired up, according to statistics bureau data compiled by Bloomberg. Smelters made 2.75 million tons last month, an increase of 1.2 percent from a year earlier.


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