China's Steel Output Rises For Sixth Straight Month

14 September 2016

The steel data in particular supports the better than expected 6.3% rise in industrial output last month, even though coal output fell.

It is good news for the Australian iron ore and coal sectors - especially for the likes of BHP Billiton (BHP), Rio Tinto (RIO), Fortescue (FMG), Whitehaven Coal (WHC) and Wesfarmers (WES).

The Chinese data and solid spot prices around the world make a mockery of the attempts to sell down the shares of some of these companies - as we have seen with BHP off and on for the past couple of weeks.

It was the sixth straight monthly rise in Chinese steel output and the latest sign that a rally in steel prices and pick up in demand continues to help mills to maintain production, instead of cutting it back as demanded by the central government.

China’s biggest listed steelmaker, Baoshan Iron & Steel said on Tuesday it has raised its prices for October, its eighth price rise so far this year.

Total output for the month was 68.57 million tonnes, the National Bureau of Statistics data said yesterday, the rise was the fastest pace in percentage terms since at least June last year.

For the first eight months of the year, total production was down 0.1%, to 536.3 million tonnes. The central government has said it aims to eliminate 100-150 million tonnes of annual production and there had been fears that would cut demand for iron ore and coking coal imports.

Far from it, there is no sign of any slide in prices. Iron ore prices are still well above $US50 a tonne and coking coal prices have surged in the past six weeks to touch $US200 a tonne for high quality Australian hard coking coal.

Chinese iron ore imports jumped more than 18% in August from a year to 87.7 million tonnes. In the first 8 months of the year imports of ore were up 9.3% at 669.65 million tonnes. They are on track to hit 1 billion tonnes for the first time this year.

But while there are no outward signs of the steel production capacity cuts impacting output in the data so far this year, there is in China’s coal output which fell 11% in August to 278 million tonnes.

The government wants to cut 250 million tonnes of coal output in 2016 to slash overcapacity.

Production in the first eight months of 2.17 billion tonnes was down 10.2% from the same period last year, yesterday’s figures from the National Statistic Bureau showed.

State media said last week that China had cut capacity by 150 million tonnes by August, reaching 60% of it target.

Coal imports in August rose to 26.59 million tonnes, up 25% from August 2015.

August’s 11% fall in output was down from 16.6% drop in May, the biggest monthly fall in 2016 so far.The production cuts only apply to thermal and other lower quality coals but not to coking coal used in the steel industry.

China’s coking coal production fell 5% last month to 39.13 million tonnes, with output in January to August reaching 292.38 million tonnes, down 2.7%.

With steel demand and output still high and iron ore imports in strong demand, the production shortfall in coking coal helps explain why Chinese coal imports are rising and spot prices in Asian markets have jumped sharply.

China’s thermal coal prices have jumped around 40% because of the production cuts, helping explain the near 50% jump in thermal coal spot prices in Newcastle so far this year.


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