Photographer: Doug Kanter/Bloomberg

Steel Output Drops in China as Maike Flags Iron Ore Mismatch

  • Mismatch seen between less steel, more iron ore, Maike says
  • China steel output to drop 1.4% per year, BMI Research says

The world’s biggest steelmaker is pouring less metal. Production in China dropped in October from a year earlier as mills battled lower domestic demand, slumping prices and rising industry losses.

Crude steel output was 66.12 million metric tons, 3.1 percent lower than the same month last year, according to National Bureau of Statistics data on Wednesday. Supply for the first 10 months was 675.1 million tons, 2.2 percent less than the same period in 2014.

Mills in China, which account for about half of global output, are confronting the first shrinkage in local demand in a generation, exacerbating industrywide overcapacity and hurting the outlook for iron ore cargoes shipped from the biggest miners in Australia and Brazil. Rio Tinto Group, BHP Billiton Ltd. and Vale SA are raising low-cost output even as China makes less steel, seeking to seize greater market share. Overall industrial output in China last month held at the weakest level since the global credit crisis.

“There’s a mismatch between rising iron ore supply and falling steel output,” Wang Mohan, an analyst at Maike Futures Co., said by phone from Shanghai. “It’s an established trend that Chinese crude steel production is contracting.”

Good Chance

Steel production in China may eventually shrink 20 percent, Shanghai Baosteel Group Corp. Chairman Xu Lejiang forecast last month. Jiangsu Shagang Group Chairman Shen Wenrong said that there’s a good chance steel production in the country will drop by at least 10 percent within the next decade, according to a report in The Australian newspaper on Wednesday.

Iron ore with 62 percent content delivered to Qingdao was at $48.58 a dry ton on Wednesday, 32 percent lower this year, according to Metal Bulletin Ltd. The raw material bottomed at $44.59 on July 8, a record in daily price data dating back to 2009. 

China’s steel output will probably shrink 1.4 percent a year between 2016 and 2019, a reversal from growth averaging 6.6 percent from 2011 to 2014, BMI Research said in a note received on Wednesday. Iron ore prices are expected to remain low due to an oversupplied seaborne market, it said.

Signs of difficulties for steelmakers are mounting as product prices tumble. Medium- and large sized mills tracked by the China Iron & Steel Association incurred losses of 28.1 billion yuan ($4.4 billion) in the first nine months of this year, the association said on Oct. 28. Steel demand in China shrank 8.7 percent in September on-year, it added.

“The whole industry is bleeding money,” Maike’s Wang said. “Actual steel demand remains weak as economic growth is slowing.”

— With assistance by Feiwen Rong

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