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China’s Steelmakers Push Output to Record Rate After Price Rally

China’s daily crude steel output jumped to a record high in April as mills ramped up production to take advantage of rising prices and the best profits this decade.

Output over the month rose 0.5 percent to 69.42 million metric tons from a year earlier, the National Bureau of Statistics said on Saturday. While below March’s record monthly figure of 70.65 million tons, the daily rate of 2.314 million tons was higher due to fewer producing days and surpassed the previous best set in June 2014.

April’s figure takes production in the first four months to 261.4 million tons, still down 2.3 percent on a year ago. China accounts for about half of global supply for the metal used in everything from cars to skyscrapers.

Steel prices in China rebounded in the first four months after five years of losses, lifted by credit easing and an improvement in the property market as the government sought to shore up growth. Speculators fueled the bonanza in the belief that economic stimulus and industrial reforms would drive up demand and curb supply. At the end of April, regulators and exchanges moved to cool the frenzy and prices have since receded.

China’s steel output shrank last year for the first time since 1981 as demand contracted. As much as 50 million tons of idled capacity has since been brought back into production, according to Mysteel Research.

“Chinese steel mills haven’t had such good profits since the financial crisis, and have therefore wasted no time in firing up,” Xu Xiangchun, chief analyst at Mysteel, said before the data was released.

Still, steel prices have flipped from bull to bear market in recent weeks. A 25 percent slump in the Shanghai benchmark since April 21 has stoked concerns that “recent price surges are driven more by capital inflows from new investors than fundamentals such as a recovery in demand or cuts in supply,” according to Yi Zhu, an analyst at Bloomberg Intelligence.

In a sign that China is recommitting to the reform of its bloated state sector, its top producer, Hebei Iron & Steel Group Co., said Friday it’ll cut 5.02 million tons of capacity. That still leaves a way to go. Japan’s biggest mill, Nippon Steel & Sumitomo Metal Corp., also said Friday that it would take control of a smaller domestic steelmaker in a bid to weather a “rapid deterioration of the business environment” caused in part by overcapacity in China of some 400 million tons.

China is forced to export its steel surplus as domestic growth slows. Record overseas sales last year sparked a rise in trade tensions and battered profits across the world. Casualties of the glut include Australia’s Arrium Ltd., forced into administration, and the loss-making U.K. operations of India’s Tata Steel Ltd., which are up for sale.

On Friday, Baoshan Iron & Steel Co., China’s second-largest steelmaker, urged the U.S. to reject a complaint filed by U.S. Steel Corp. that seeks to block its exports. The European Union has also launched an anti-subsidy review of Chinese steel, while India has already set up barriers to the the deluge of cheap Chinese metal.

— With assistance by Martin Ritchie, and Feiwen Rong

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