China''s crude steel production is growing continuously and thus the contradiction of steel supply demand is deepened which is unfavorable to the stabilizing signs of recovery of Chinese steel market. As price is still low and cost is still high, Chinese steel mills are in bad living conditions. In a word, the supply demand contradiction is the main resistance to the steel market recovery.
In May, the production of crude steel, pig iron and rolled steel hit a record monthly high. According to the statistics released by the Chinese State Statistics Bureau on the 11th of June, in May the crude steel production in China has reached 56.14 tonne by a comparative growth of 20.7%, the pig iron production has reached 52.26 tonne by 14.3% and the rolled steel production has reached 71.22 tonne by 23.6%.
The export condition is also far from being satisfactory, although the steel export volume in may hit a record high since October 2008. The weakness of international market, the downtrend of Chinese domestic market and the possibility of new export policy being executed, all could have a negative effect on the steel export.
Besides, the downstream demand will have no substantial improvement in a short term as the wait-and-see attitude of end users is still strong. Moreover, the continual real estate regulation policy and the contraction in automobile demand also cast a shadow over the downstream demand.
If Chinese government cannot control the steel production and the domestic demand cannot be improved substantially, the oversupply will be more and more serious. Recently, 6 out of the 7 main steel species are producing with a cost that is higher than the market price. Thus, the production cost will be the main factor that drives steel price higher but undoubtedly Chinese steel price will still go down in the short run.