Steel Production Races Ahead In China After Rebound In Prices

16 July 2016

CHINA churned out a record amount of steel daily in June as mills in the world’s top producer boosted supply to take advantage of a rebound in prices, surprising analysts who had expected a weaker figure.

Crude-steel output expanded 1.7% to 69.47-million tonnes in June from a year earlier, according to data from the statistics bureau on Friday. On a daily basis, the rate of 2.32-million tonnes surpassed the previous high set in April, Bloomberg calculations based on the figures show.

The busiest month to date for the industry that accounts for about half of global production will increase the challenge for overseas mills, which are already contending with unprecedented flows of Chinese exports. Steel prices climbed in the first half as policy makers pledged to back growth, and GDP data on Friday showed the economy stabilised in the second quarter."The June figures have indeed exceeded expectations," Dang Man, a steel analyst at Maike Futures in Xi’an, said by phone. "This probably shows that steelmakers are focused on boosting output because they’re eager to capture higher profit margins."

First-half drop

In absolute terms, June’s production was among the highest on record and compares with the record high of 70.65-million tonnes set in March. Still, over the first half of 2016, nationwide output of 399.56-million tonnes was 1.1% lower than in the same period of 2015.

Even after record steel output, inventories of reinforcement bar, a benchmark product, have continued to shrink. Holdings fell 5.2% to 3.47-million tonnes last week, the lowest since at least March 2010, according to Shanghai Steelhome Information Technology. Prices have risen every month this year apart from May, resuscitating mills’ margins.

Steel production is expected to contract in China as the shift toward consumption is seen blunting demand. Australia’s department of industry, innovation and science said earlier in July that China’s output would drop from 783-million tonnes in 2016 to 763-million tonnes in 2017.

Still, June’s buoyant steel-production data may bolster iron ore prices that have rallied 34% in 2016, rebounding from three years of losses. Ore with 62% content delivered to Qingdao was at 58.42 a dry tonne on Friday, capping a third weekly gain, according to Metal Bulletin.


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