Economic Reference News cited Mr Xu Xiangchun Mysteel chief consultant as saying that if the production cuts are carried out and materials prices keep becoming softer, the mills may witness less losses and it’s possible the domestic steel market could find a new balance in the fourth quarter.
According to the paper, quite a few small steelmakers are cutting productions and the large mills are also arranging maintenance overhaul. It’s obvious that price falls and slack demand have offered the mills no alternative but reduce outputs and make fewer losses.
In Hebei, the small and medium size steelmakers’ utilization of capacity has fallen to below 80% from normal level of some 95% in Tangshan; the big mills are learned also contracting the capacity and starting maintenance.
Chinese steelmakers are faced with three big challenges incl. housing industry control, exchange rate reform and withdrawing export tax rebate for some low end steel products, which combined to eaten up their profits. Currently, there is no profit for selling HRC in worst occasion and they make loss of CNY 500 per tonne steelmaking. But the prices are falling further.
Based on the monitor by National development &Reform Commission, major steel products averaged CNY 4597 per tonne in the major cities, down 0.81% from the previous week. Compared with April 21st the downswing is calculated at CNY 401 per tonne or 8%.
In the meantime, capacities keep expansion despite government ban. Crude steel production in May was reported at 56.143 million tonnes up by 20.7%YoY. As a result, the steel stockpiles climbed to a new high of 15.09 million tonnes in early July up by 74%YoY accumulating risks in the sector.
Mr Xu said the market is unlikely to turn better in the low seasons of July and August since demand for steel products are expected not to revive in short term given the low housing market and banning of export.
He added that undoubtedly, the steelmaker fulfillments of production cuts are essential at this moment. The move can ease up oversupply and support the price and on the other hand, it will reduce demand for the materials like iron ore and coke and thus pull down the costs.
Besides, implementation of energy conservation & emission reduction and elimination campaign will also see effects in the fourth quarter, which are expected to boost both demand and confidence of the industry too.