Chinese steel market is victim of blatant paradox. Abundant supply has played havoc with the market prices for some time in China. Piquantly despite sufferance the mills are yet come to terms with the reality of curtailed supply in market where demand is sluggish. Normally such adjustments are voluntary to maintain equilibrium.
Ironically Chinese mills have gone ahead with production surge revealing inherent inflexibility in enforcing cuts.
1. High capacity has made production compulsive to recover costs.
2. Steel mill are in “who will bell the cat syndrome” as no one wants to take the lead in cutting production lest they lose market share.
3. In socialistic economy it is difficult for local government to bring production cuts lest unemployment creeps in culminating in social unrest.
4. Undeniably production cuts have been carried out recently but the impact on production has been nominal owing to sequence of maintenance. Steel mills commence maintenance of equipment, from the rolling mill backwards to the blast furnace. Hence the crude steel production has not been reduced as yet.
Latest data released by China Iron and Steel Association (CISA) shows China’s major large and medium-sized steel enterprises produced 1.62million tonne of crude steel in the first 10 days of August on a daily basis, up 0.82% from the last 10 days of July. It is estimated that China’s average daily crude steel output reached 1.970mln tonnes, up 1.05% for the same period.
Summing up the market continues to suffer with hopes of revival smothered at every turn of week. Drop of 1% in steel prices during the past 1 week has belied the expectations yet again.
CLPPI - Chinese Long Product Price Index
CFPPI - Chinese Flat Product Price Index
CHISPI - Chinese Steel Price Index
Source - Strategic Research Institute