China Steel Output Slumps to a One-Year Low as Prices Collapse

Steelmakers in China reined in production last month as prices collapsed and the onset of winter in the largest producer curbed demand already hurt by a cooling economy.

Crude steel output fell 1.6 percent to 63.32 million metric tons from a year earlier, according to data from the statistics bureau released Saturday. So far this year, production has dropped 2.2 percent to 738.38 million tons. China makes about half of the world’s steel.

Demand in China is weakening as policy makers seek to steer Asia’s biggest economy away from investment-led growth to one driven by consumer demand and services. China’s steel sector contracted further last month, while an industry association said demand was shrinking at an unprecedented speed. Determined to maintain output as growth cools, mills have flooded the world with exports, shipping more than 100 million tons this year.

“The downtrend in steel output should continue as weak credit and demand conditions do not support expansion,” Huang Huiwen, an analyst at Shanghai Cifco Futures Co., said before the data was released. “Demand also goes into a seasonal lull, with some mills shutting for winter as construction slows.”

As prices of some steel products slumped to records, mills in the country sought out overseas markets where their supplies may be sold at more competitive rates. Exports climbed 22 percent to 102 million tons in the first 11 months, according to customs data. That’s almost as much as Japan, the world’s second-biggest producer, made in the whole of last year, according to World Steel Association data.

The mills’ struggles have dealt a blow to iron ore. The price of the raw material sank 46 percent this year as faltering demand coincides with output increases from the top miners including BHP Billiton Ltd. and Rio Tinto Group in Australia and Brazil’s Vale SA. Ore with 62 percent content delivered to Qingdao was at $38.30 a dry ton on Friday, a record low in daily prices compiled by Metal Bulletin Ltd. going back to May 2009.

While steel output contracted, China’s industrial production showed unexpected strength in November, rising 6.2 percent from a year earlier. That compares with the 5.7 percent median estimate of economists surveyed by Bloomberg and October’s 5.6 percent.

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