According to a new report issued by the China Iron and Steel Association (CISA) based on the data from the National Bureau of Statistics (NBS), in the January-July period of the current year China produced 492 million mt of crude steel, up 5.1 percent year on year, with output by CISA members increasing by 7.5 percent and output of other small and medium-sized steelmakers declining by 2.1 percent, both year on year. In the January-July period, apparent consumption of Chinese crude steel amounted to 450 million mt, increasing by 44.04 million mt or 10.9 percent year on year.
According to the CISA, there are three factors which may exert a negative impact on finished steel prices in the coming period.
First of all, finished steel prices have risen rapidly, pushing up raw material prices and causing steelmakers to increase their capacity utilization rates.
Secondly, iron ore prices are currently at high levels. As of August 18, the China Iron Ore Price Index (CIOPI) had increased to $74.98/mt, up 20.14 percent compared to the end of June, while finished steel prices in China only rose by 12.70 percent during the same period, which will put pressure on steelmakers to reduce costs and improve their performance.
Thirdly, the domestic steel market has been performing better than the export market, resulting in reduced finished steel exports. In the January-July period this year, China’s steel exports declined by 19.26 million mt or 28.7 percent year on year, contributing to increased domestic supply, which will negatively impact the domestic steel market.
In the longer term, although the production restrictions due to environmental protection measures planned for the winter season (November 2017-March 2018) will likely exert a negative impact on finished steel supply, the shortfall of supply compared to demand is not expected to be large.
The CISA concluded by saying that finished steel prices in China are unlikely to continue to indicate sharp rises in the coming period.