China steel output jumps to record despite smog campaign

By Muyu Xu and Manolo Serapio Jr

BEIJING/MANILA (Reuters) – China’s steel output surged to a record in May as mills ramped up production to chase fat profit margins, with a strong outlook for demand likely to keep mills running at nearly full capacity for the rest of the year.

The increased output comes despite China’s efforts to limit production in key areas as part of its anti-pollution campaign and highlights Beijing’s challenge in tackling overcapacity in the world’s top steel producer.

China produced 81.13 million tonnes of crude steel last month, up 5.8 percent from the previous month and 8.9 percent from the same month last year, according to data from the National Bureau of Statistics. Year-to-date output rose 5.4 percent to 369.86 million tonnes.

To view a graphic on China’s Monthly Crude Steel Output, click: https://reut.rs/2MohKT6

Daily average output climbed 2.4 percent to 2.62 million tonnes in May from April, according to Reuters’ calculations based on the official data.

“Steel mills have been running full-load and adding scrap steel to increase output in order to cash in on strong margins,” said Zhuo Guiqiu, senior analyst at Jinrui Futures.

Given firm demand and smog-battling production curbs in areas including the key steelmaking hubs of Hebei and Jiangsu provinces, analysts say mills can earn up to 900 yuan ($141) by producing a ton of steel at present, not far from more than 1,000 yuan late last year.

UPBEAT OUTLOOK

The utilization rate at steel firms across the country was above 71 percent from late May, a level last seen before winter production curbs which kicked in in October and lasted through March.

Recent environmental inspections in some 10 regions have forced some mills to cut production. But analysts do not expect the curbs to last long, unless new environmental policies add to pressure on supplies.

“Demand from downstream sectors may be better than expected,” said Zhuo. “The market generally believes the infrastructure construction sector is more active in the second half than in the first half, which could lift demand for steel products.”

Underlining firm demand, steel stockpiles at both mills and traders declined in May despite rising output, Mysteel consultancy data showed.

To view a graphic on Steel products inventory at Chinese mills, click: https://reut.rs/2JKFm2H

China’s output has been increasing despite its closure of 255 million tonnes in steel production capacity in the past two years, including illegal induction furnaces.

That is part of Beijing’s vow to address overcapacity that has dogged its steel sector for years.

Outside China, Chinese steel companies have built or acquired 13.5 million tonnes of capacity and are building an additional 8.6 million tonnes over the next few years, Morgan Stanley (NYSE:) analysts said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.