Posted on 20 Jul 2022
China's pig iron and crude steel output are likely to decline further in mid- and late-July, as more steel mills have been forced to cut output amid increasing losses.
Steel output cuts are expected to lend support to domestic steel prices, which have fallen steeply from May due to weak demand and supply glut. However, any rebound in prices could be only modest, as steel mills will ease steel output cuts as soon as steel profit margins recover, industry sources told S&P Global Commodity Insights.
Due to newly planned blast furnace maintenance works mostly happening in eastern and northern China, daily pig iron output is likely to decline further over July 15-31 by at least 40,000 mt/day, according to S&P Global's calculations based on data from market sources.
As mills undertook output cuts, domestic sales profit margin of rebar fell from minus $27/mt to minus $62/mt over July 8-15, and hot-rolled coil from minus $37/mt to minus $102/mt, S&P Global data showed.
According to the China & Steel Association, China's daily pig iron output in July 1-10 fell 3.3% from June to 2.478 million mt. This means daily output for the rest of July could be reduced further by maximum 2.438 million mt. However, this level will still be higher than 2.35 million mt in July 2021.
Adding to the supply glut, decline in crude steel output in mid- and late-July will be even slower, as cheap scrap has recently pushed some electric arc furnace steelmakers into the black, allowing them to resume production, according to industry sources.
"The steel output cuts may lend support to steel prices, but only temporarily, because once demand improves, steel output will recover quickly and undermine the upward momentum again," a market source said.
Some sources believed that steel demand, especially in infrastructure sector, will improve strongly in August and September, but elevated steel production would cap the rebound in steel prices.
Source:Platts
