China`s steel industry going into reverse as output slides
Source: www.chinamining.org Citation: Bloomberg Date: June 12, 2015
China`s steelmakers reduced output as prices slid to record lows on slowing property and infrastructure construction in the world`s biggest producer.
Crude steel production in May fell 1.7 percent from a year earlier to 69.95 million tons, according to data from the National Bureau of Statistics on Thursday. Output on a daily basis fell 1.8 percent from April.
The slide underscores weakening domestic demand as China seeks to shift away from investment-led growth to a consumption- driven economy, deepening a slowdown in construction. Production during the first five months of the year declined 1.6 percent.
"The second quarter has been even tougher than the first for the mills," said Daniel Kang, an analyst at JPMorgan Chase & Co. in Hong Kong. "Apparent consumption, when you exclude exports, has fallen more than 5 percent this year and this highlights that the economic transition to a new normal is affecting early-cycle commodities such as steel."
China`s total industrial output rose 6.1 percent while fixed-asset investment grew at a slower-than-estimated 11.4 percent, statistics bureau data showed. New property construction starts slid 16 percent in the first five months of the year.
About 70 percent of the country`s steel demand is related to property, infrastructure and machinery manufacturing, according to Helen Lau, an analyst at Argonaut Securities (Asia) Ltd.
Falling Prices
Prices of some steel products have fallen to a 12-year low, spurring Chinese producers to cut output to stem losses or sell at competitive prices overseas. China`s exports of steel products surged to a four-month high in May and are up 28 percent in the first five months of this year, customs data showed Monday.
The slowdown in China`s steel industry has coincided with a surge in supply of iron ore, pushing prices of the steelmaking raw material down as much as 34 percent this year. A rebound in the iron ore market from early April has taken the price to the highest since January 23, according to data from Metal Bulletin, squeezing profitability at China`s steel mills.
Spot prices of reinforcement bar, used in construction, fell 0.2 percent to 2,332 yuan a ton, the lowest since Beijing Antaike Information Development Co. began compiling data in 2003. Rebar for October on the Shanghai Futures Exchange rose 0.8 percent to close at 2,355 yuan a ton.
Steel mills in China face "massive losses" as prices decline while demand reaches its seasonal low during the summer months, according to a Bloomberg Intelligence report Wednesday.
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