China’s ‘mini-stimulus’ efforts unlikely to lift steel prices: CISA

Thursday, 24 July 2014 00:36 - - {{hitsCtrl.values.hits}}

BEIJING (Reuters): A series of “mini-stimulus” policies designed to rejuvenate China’s flagging economy will help support steel demand over the coming months, but prices will continue to be weighed down by a supply glut, the country’s steel association said.

A labourer looks at steel coils next to a production line of Dongbei Special Steel Group Co., Ltd., in Dalian, Liaoning province – Reuters

China’s economy grew at an annual rate of 7.5% in the second quarter, up slightly from 7.4% in the first three months of the year, responding to a modest stimulus package that included tax cuts for small firms, reserve requirement cuts for some banks and infrastructure spending. New housing construction helped drive an improvement in steel demand in June, and inventory levels declined 5.65% declined from the end of May, but prices still remained near 11-year lows, the China Iron and Steel Association (CISA) said. “Steel production remains at a high level, which isn’t conducive to easing the oversupply problems in the steel market, and it will be difficult for steel product prices to see any large-scale recovery,” it said in its monthly market report. China’s steel sector has been plagued by overcapacity, and industry officials have expressed hope that weakening demand and higher environmental compliance costs will help winnow out smaller, inefficient producers. The local government of the major producing region of Hebei near Beijing is also planning to shut as much as 60 million tons of ageing, polluting steel capacity by 2017. Industry estimates suggest China’s total steel capacity stands at more than 1 billion tons, compared to an annual production rate of 779 million tons in 2013.

China’s June daily steel output at new high

BEIJING (Reuters): China’s daily crude steel output rose 1.8% in June to hit a record 2.31 million tons, defying any seasonal downturn in demand, data from the statistics bureau showed last week. Total output over the month reached 69.3 million tons, up 4.5% from the same month last year but dipping 1.6% from May’s record high. On an annualised basis, output amounted to 828.6 million tons, according to Reuters calculations, which would represent a 6.3 increase on last year. Despite soaring environmental costs, persistent overcapacity and widespread cash shortages throughout the Chinese steel sector, output has remained strong, with little indication that mills are adjusting production rates in anticipation of a summer slowdown in demand over summer. “The rise in new export orders together with an improvement in demand have dragged production up,” analysts at the Tangshan-based consultancy ChinaTSI.com said in a note. However, the consultancy warned that there were no obvious signs that the increase in steel demand was being reflected by price increases, and more policy support would be needed to keep the momentum going over the next few months. Steel product inventories fell over the course of June, according to the SteelHome consultancy, with rebar stocks dropping more than 11% to end the month at 5.98 million tons. Rebar stocks had surged to as high as 9.4 million tons in February. With domestic demand still relatively weak, the sector has benefited from an improvement in exports. In the first half of the year, China sold 41 million tons of steel products overseas, up 33.6% compared to the same period of 2013. The China Iron and Steel Association (CISA) warned in a research report earlier this month that apparent steel consumption in China was rising far more slowly than production, and by May had actually declined for four consecutive months. It said 97.2% of additional output over the first five months of the year was diverted into exports.

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