Top Steel Producer China Revs Up Output After Prices Advance

Updated on
  • China’s steel production in August jumps 3 percent on-year
  • Gains come after G-20 pledge to address global steel glut

China’s steel output rebounded in August after prices rallied, delivering an early warning to world leaders who earlier this month pledged to tackle a global glut of the metal.

Crude steel production in the top supplier rose to 68.57 million metric tons in August, up 3 percent from a year earlier and 2.6 percent higher than July, according to the National Statistics Bureau. In the first eight months, output of 536.32 million tons was just 0.1 percent shy of last year’s pace.

The figures showing the bounce in August’s output came after the Group of 20 leaders’ meeting in China, which wrapped up Sept. 5 with a plan to to establish a global forum to deal with oversupply. Chinese mills, which make about half the world’s steel, have boosted output amid resurgent prices, with steel reinforcement bar on the Shanghai Futures Exchange rising to its highest monthly average since December 2014.

“We expect that production will remain high because better profitability is encouraging mills to boost output,” Kevin Bai, a researcher at consultancy CRU Group’s Beijing office, said by phone. “But one of the factors to watch is going to be stricter government policy to cut output and obsolete capacity. Less than half of their target has been met.”

China’s Campaign

A pick-up in Chinese steel prices this year has helped ease crisis conditions in the global industry, although exports from the Asian nation remain elevated, spurring trade tensions. China has said it will tackle its own overcapacity by cutting as much as 150 million tons, or about 13 percent of its total, by 2020. That campaign is already falling short, with only 47 percent of capacity shut this year by end-July, from a target of 45 million tons.

The higher steel output last month was part of a wider uptick in China’s economy, with industrial output, retail sales and fixed-asset investment all rising more than expected. Beijing’s credit-and-infrastructure splurge that began earlier this year will continue to support demand and higher steel output into the first half of 2017, Macquarie Group Ltd.’s Singapore-based analyst Ian Roper said earlier this month.