China's Giant Steel Industry Just Churned Out Record SupplyBloomberg News
Steel production rises in March, while quarterly figure drops
`This is a significant increase,' says CRU Group's Bai
The world’s biggest steel producer pushed output to a record in March as mills in China fired up plants to take advantage of a price surge since the start of the year that’s rescued profit margins.
Output rose 2.9 percent to 70.65 million metric tons from a year earlier, the National Bureau of Statistics said on Friday. That’s the highest ever, according to data from state-owned researcher Beijing Antaike Information Development Co. Still, for the first quarter, supply fell 3.2 percent to 192 million tons.
The country’s steelmakers are ramping up output after cuts at the end of 2015 fueled a major price surge that has rippled out to world markets. The mills’ busiest-ever month came as figures showed that China’s economy stabilized, aided by a rebound in the property market. Last year, the country’s steel output shrank for the first time since 1981 as demand contracted and mills battled surging losses and too much capacity, and forecasters including Australia’s government expect a further decline in 2016.
“It’s normal to see higher output in March but this is a significant increase,” said Kevin Bai, a Beijing-based researcher at consultancy CRU Group. “Right now, the mills are making money. The market is still relatively tight and this has encouraged some producers to return.”
The domestic price of benchmark hot-rolled sheet has surged 45 percent this year, while rebar futures on the Shanghai Futures Exchange advanced 30 percent. The increase has aided mills’ profitability even as iron ore prices rallied 36 percent in 2016.
The steel rally will soon end as Chinese mills lift output and traders end a flurry of restocking, HSBC Holdings Plc analysts said in a note on Thursday. China accounts for about half of global supply, with output used in everything from cars to skyscrapers.
The rise in Chinese output in March, coupled with figures earlier this week that showed a 30 percent increase in export volumes, will be a further concern to a beleaguered global steel industry. China exported a record amount last year, triggering a rise in trade tensions, battering profits at world producers and forcing India’s Tata Steel Ltd. to offload its ailing U.K. business.
The gross domestic product figures showed Asia’s top economy grew 6.7 percent in the first quarter, in line with expectations. Major steel-using sectors showed improvement as new floor space under construction expanded 19.2 percent in the quarter on-year while automobile output rose 8.9 percent in March.
Most observers still expect China’s steel production and demand to drop this year as policy makers pivot away from heavy industry. Output will probably decline to 781 million tons this year from 806 million in 2015, according a projection from Australia, the world’s largest shipper of iron ore.
Steel rebar on the Shanghai Futures Exchange dropped 1 percent on Friday to trim its weekly advance to 4.7 percent, while iron ore on the Dalian Commodity Exchange dropped the most this month by 2.2 percent.
China’s aluminum industry, also the world’s biggest and facing overcapacity, followed a similar dynamic to steel in the first quarter. Production of primary aluminum rose 2.7 percent to 2.62 million tons in March from a year earlier, while output was 2 percent lower at 7.34 million tons for the three months. Aluminum was unchanged on the Shanghai Futures Exchange after posting its highest close in nearly seven months on Thursday.
— With assistance by Martin Ritchie, and Winnie Zhu