Continuing production increase is a threat for markets

SteelOrbis Shanghai China, in May, broke another record in average daily finished steel production with 1.2978 million mt per day, up 1.63 percent or 20,800 mt month on month. Meanwhile, total finished steel production in the month increased 27.1 percent year on year to 40.233 million mt, which may mean that alarm bells are ringing for over-capacity. Besides, China's pig iron production increased 23 percent year on year to 35.33 million mt in May and the average daily production increased 5.34 percent or 57,800 mt to 1.14 million mt. Crude steel production in May was 35.9341 million mt, up 19.6 percent year on year, and the average daily production increased 3.15 percent or 35,400 mt month on month to 1.1591 million mt. From January to May, the cumulative pig iron production is 158.18 million mt, up 21.1 percent year on year, crude steel production is 162.68 million mt, up 18.6 percent, and finished steel production is 180.6 million mt, up 24.6 percent. Breaking down into finished steel product categories in May, the production of rebar increased 23.9 percent year on year to 6.9063 million mt; that of wire rod 15.2 percent to 6.0371 million mt, that of medium plate 12.3 percent to 2.0617 million mt, that of medium and wide steel strip 30.2 percent to 3.9582 million mt, that of CR sheet 46.6 percent to 1.049 million mt, that of CR thin and wide steel strip 26.1 percent to 902,600 mt, that of HR sheet 82.5 percent to 523,900 mt, that of HR thin and wide steel strip 32.4 percent to 1.2379 million mt. Compared with the same period last year, the increase rates of light standard rail, HR sheet, heavy plate, medium and small profiled bar, color coated sheet (coil), CR sheet, large profiled bar, HR thin and wide steel strip, electric sheet and medium and wide steel strip are all above 30 percent, among which, those of light standard rail, HR sheet and heavy plate are 119.9%, 82.5% and 56.1% respectively. Especially the strong increase in monthly crude steel production indicates that China's capacity is continuing to increase rapidly. The lowering of export tax rebate rate will limit China's steel exports at least in the short term, which will result in more pressure on the domestic market and lead to a downward trend for prices. If the international market cannot absorb this factor, then Chinese market may go into a downturn in the long term.