After a brief rally in July end steel prices fizzled away in the first week with 2% drop. If July was rabble rouser for production touching 60.1 million tonne, August was an awakening call for the mills to prune production.
Situation was precarious with nearly 77% of the mills mired in losses. According to the China Iron and Steel Association (CISA) statistics, the combined profits of China’s major steel mills recorded only CNY 2.4 billion for the first half of this year, plummeting by 96% compared with the same period last year.
Total crude steel production is hopefully to go at 60.979mln tonne in whole July, with the daily production level at 1.967mln tonne, down by 1.99% from the 2.007million tonne during the same period of June. Such preposterous production level against all odds reflects utter lack of awareness and discipline in the Chinese steel industry.
In a knee jerk reaction mills pre-poned maintenance to cut down on production and inventory. It is learnt that over 40 mills have arranged maintenance of equipment or plans to carry out overhauls. About 20 out of the 145 blast furnaces in Tangshan, the area most concentrated with blast furnaces in China, carried out maintenance, with the operating ratio at about 86.2%.
A brief flurry in July end can be imputed to speculative buying by traders thinking that market had bottomed out as a result of production cuts. However the optimism was unsustainable beyond a week with downstream demand failing to open.
Since the outcome of production pruning embarked upon by the mills in late July and early August is not known one can keep fingers crossed about the elusive revival.
Domestic steel market remain pessimistic in the near term, however, if steel mills continue productions cuts and the pro-economic measures released earlier gradually takes effect, plus relaxation of lending rates since inflation has been reined steel market is likely to stabilize by the end August end .
CLPPI - Chinese Long Product Price Index
CFPPI - Chinese Flat Product Price Index
CHISPI - Chinese Steel Price Index
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Source - Steel Prices China