World’s Largest Steel Industry Shrinks as China Demand Slows

13 August 2015

Chinese steelmakers cut output last month as companies in the world’s largest producer of the metal grapple with overcapacity, sinking prices and slowing economic growth.

Crude-steel output fell 4.6 percent to 65.84 million metric tons from June, data from the National Bureau of Statistics showed on Wednesday. Production in the first seven months was 476 million tons, 1.8 percent less than a year earlier.

The first drop in Chinese steel demand in a generation is having ripple effects around the world, with mills exporting record levels of the alloy as local prices slump. Producers may end up shipping even more abroad after China devalued its currency, with the yuan sinking for a second day on Wednesday, making the nation’s exports cheaper for overseas buyers.

Lower steel production in China will hurt demand for iron ore, which tumbled last month to the lowest since at least 2009.

“Many mills went through their maintenance programs during summer,” Ma Kai, an analyst at China International Capital Corp., said from Shanghai. The drop also showed “that downstream infrastructure and property had no recovery, therefore demand for steel remained weak.”

Mills in China, including Hebei Iron & Steel Co. and Baoshan Iron & Steel Co., are the linchpin of the global industry, accounting for about half of supply. The country’s production probably peaked in 2014, according to a forecast from the China Iron & Steel Association.
Product Output

Output of steel products fell 6.2 percent to 92.3 million tons in July from a month earlier, according to the bureau. Average daily production was 2.977 million tons, down from 3.281 million tons.

Steel reinforcement bar, used in construction, dropped to 2,102 yuan ($329) a ton last month, the lowest price since at least 2003, according to Beijing Antaike Information. It was at 2,329 yuan on Wednesday, down 16 percent this year. Iron ore rose 0.2 percent Wednesday to $56.31 a ton.

Mills around Beijing including in Hebei, the largest producing region, may face government-ordered curbs this month and in September as policy makers seek to clean up the air for a parade and sports event. The moves will hurt steel output, Australia & New Zealand Banking Group Ltd. said on Tuesday.

“Some of the output cuts might become permanent as the government and market works in tandem to squeeze out the least-efficient and loss-making capacity,” said Li Yaozhong, head of commodities at Beijing Low Risk Asset Management Co.