China Daily reported that the production of crude steel in China may start to drop in June 2011, after peaking in early May 2011, because of an impending power shortage.
According to the latest figures from the China Iron and Steel Association, steel production reached a record of nearly 1.95 million tons in the first 10 days of May 2011.
Ms Zhang Lin, a steel analyst from the Beijing based Lange Steel Information Center, said that "Crude steel output still remained high at the beginning of May 2011, but it will be affected by worsening power shortages. Steelmakers might continue to boost output so they will have enough stock when a power shortage comes in the summer."
China is facing serious power shortages over the summer, with the State Grid Corp anticipating a capacity gap of 30 to 40 gigawatts. Thousands of small mills will face the challenge of power shortages because the government will first guarantee electricity to residential users.
The government is limiting power supplies in southern China. Hunan Valin Steel Co Ltd and smaller mills reported output reductions because of local power shortages.
However, in northern China, Hebei Iron & Steel Group and Shandong Iron & Steel Group have not yet reported reduced output.
Last year's mandatory power cuts to meet energy saving targets forced small steel producers in Hebei province to cut output or close mills.
According to the consultancy Mysteel, steel prices remained flat for a week, with rebar costing CNY 4,940 a tonne on the Shanghai spot market, unchanged since May 17th 2011.
Mr Zhang said that the electricity shortage will affect the whole industry chain including raw material producers, possibly pushing up the prices of raw materials and steel products.
Xicheng Steel increased its price for deformed steel bar by CNY 20 a tonne, while Handan Steel increased its price by CNY 30 a tonne.
Prices remained stagnant at most steel mills, however. The cost rises for steel products mainly involve construction plates, as the downstream of steel plates including the car industry remained sluggish.
According to data from the National Development and Reform Commission, operating costs for Chinese steelmakers rose 17% to CNY 30.1 billion in the first quarter. The price of steel products increased 17% while the price of iron ore rose 40%, squeezing the companies' profits.
( Source: www.steelguru.com )