The National Bureau of Statistic in a latest report said China crude steel output continues to approach the higher level despite the falling domestic prices. In September, the total crude steel output registered at 50.71 million tonnes up by 28.7%YoY with the daily output recorded the history high at 1.69 million tonnes.
The huge output has stunned the world as many are searching for the reasons behind. We understand the mills bullish attitude toward the market in Q4 the remaining gap between market prices and mills production cost which still gives mills marginal profit are the reasons behind the mills' reluctance to suspension their productions.
Mr Gu Qiangxi the general manager of Zongheng Steel in Heibei province said "The oversupply situation is very severe, but the question is no mill is willing to rein back their productions. Mills still are making marginal profit or are close to the break even point. Meanwhile a host of new projects are starting operations gradually which then further press the market situation.”
The latest statistics of China Iron & Steel Association show the daily crude steel output posted at 1.69 million tonnes in the first ten days of Oct. Mr Shan Shanhua the general secretary of CISA said "If no production cut is taken, the total steel output in Oct could reach 52.4 million tonnes and the total number in quarter 4 could reach 150 million tonnes.”
According to his calculation, the annual total crude output could then break the level of 570 million tonnes. Earlier this year, Mr Shanhua has warned the mills about the oversupply situation saying the increased output combines with the decreased exports, could together push the overall supply surplus to 100 million tonnes.
Mr Gu Qiangxi said "I don't think the steel industry could itself tackle this problem. He said the government should take more serious measures including legal actions and administrative regulations to control the swelling capacity.”
Supported by the strengthening of future and electronic market, China spot steel prices started to see a round of increase since last Friday. However, insiders are worrying the prices could soon drop after the temporary uptrend as saying the market foundation is not firm yet.