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China’s Old Economy Springs June Surprise With Steel Record

Updated on
  • June was busiest month ever on daily basis for nation’s mills
  • Output still contracted in first half compared with 2015

China churned out a record amount of steel daily in June as mills in the world’s top producer boosted supply to take advantage of a rebound in prices, surprising analysts who’d expected a weaker figure.

Crude-steel output expanded 1.7 percent to 69.47 million metric tons last month from a year earlier, according to data from the statistics bureau on Friday. On a daily basis, the rate of 2.32 million tons surpassed the previous high set in April, Bloomberg calculations based on the figures show.

The busiest ever month for the industry that accounts for about half of global production will increase the challenge for overseas mills, who are already contending with unprecedented flows of Chinese exports. Steel prices climbed in the first half as policy makers pledged to back growth, and gross domestic product data on Friday showed the economy stabilized in the second quarter.

“The June figures have indeed exceeded expectations,” Dang Man, a steel analyst at Maike Futures Co. in Xi’an, said by phone. “This probably shows that steelmakers are focused on boosting output because they’re eager to capture higher profit margins.”

First-Half Drop

In absolute terms, June’s production was among the highest on record and compares with the all-time high of 70.65 million tons set in March. Still, over the first half of 2016, nationwide output of 399.56 million tons was 1.1 percent lower than in the same period of last year.

Even after record steel output, inventories of reinforcement bar, a benchmark product, have continued to shrink. Holdings fell 5.2 percent to 3.47 million tons last week, the lowest since at least March 2010, according to Shanghai Steelhome Information Technology Co. Prices have risen every month this year apart from May, resuscitating mills’ margins.

Steel production is expected to contract in China as the shift toward consumption is seen blunting demand. Australia’s Department of Industry, Innovation and Science said earlier this month that China’s output will drop from 783 million tons in 2016 to 763 million tons next year.

Still, June’s buoyant steel-production data may bolster iron ore prices that have rallied 34 percent in 2016, rebounding from three years’ of losses. Ore with 62 percent content delivered to Qingdao was at $58.42 a dry ton on Friday, capping a third weekly gain, according to Metal Bulletin Ltd.

— With assistance by Jasmine Ng, and Martin Ritchie

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