Ever since steel price began to fall in April, production of main steel species like rebar, hot rolled coil and cold roll has declined by 15% to 20%.
Forced by market and appealed by the industry, Chinese steel mills seem to take production cut seriously. According to the latest statistics accumulated by China Iron & Steel Industry Association, the daily output of crude steel is decreasing gradually. In late June, the daily output of steel in China was 1.71 million tonne, 3.2% less than that of the mid June.
However, integrating statistics of the whole June, the daily output of crude steel is still around 1.75 million tonne in June, only 3% less than the production peak in April.
Such modest cut of output clearly has limited influence on the market.
Actually, only small steel mills which purchase billets for rolling are able to adjust production program flexibly according to market conditions. As they have no blast furnace they have less pressure as to cutting production. But large and medium steel enterprises with blast furnace equipment face a different situation. Unless there will be huge losses, blast furnace production cut is hard to realize.
It is determined by the feature of blast furnaces: the larger the blast furnace is the longer the running period is, and the more it costs to cut production, usually more than the cost to continue production. Therefore, except for the routine yearly overhaul, steel enterprises will not easily let blast furnace stop running.
As large steel enterprises are not really cutting production and demand is not really improving, steel price in Chinese domestic market will continue to fall.
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