China Raw Steel Output Drops in July Again

Chinese raw steel output decreased by 3.8% to 51.74 million tonnes in July from June, which decreased for 2 months in a row, announced by Chinese authority on Wednesday. The production level kept more than50 million tonnes for 7 months in a row despite of the production adjustment by Chinese major makers under the demand adjustment in manufacturers. The makers could reduce the output more when the steel export could decrease more after termination of value add tax return in July. However, some makers increase the output when steel market price rebounds. Chinese steel supply adjustment is still uncertain toward the last quarter.

Chinese raw steel output decreased by 6.7% or 120,000 tonnes to 1.67 million tonnes in July from June. The production cut was larger than 20,000 tonnes down in June from May. Chinese major 4 makers including Wuhan Iron and Steel group and Shagang group started to reduce the output. Especially, Baosteel group’s production cut is severe, according to Japanese trading firm source.

However, Chinese production cut is apparently limited. The raw steel output increased by 2.2% in July from a year earlier. The output increased by 18.2% to 375.48 million tonnes in January-July from same period of 2009. The output could reach record 643.68 million tonnes in 2010. Chinese makers prepare for production increase when steel market price rebounded in late July and some buyers try to build the inventory with expectation for higher price in September. Chinese iron ore import increased by 8.5% in July from June, which was the first increase in 4 months. Some makers could maximize the profit by increasing the volume.

Chinese output of steel products decreased by 5.3% to 67.67 million tonnes in July from June. Chinese government tries to cool overheated market of finance and real estate by squeezing the money. The move reduced the domestic steel demand encouraging production cut in raw steel in June and steel products in July. The products’ output increased by 23.1% to 465.87 million tonnes in January-July from same period of 2009. The production represents annualized 798.64 million tonnes.

Chinese government disclosed old facilities including 175 companies for iron making to be closed on Sunday. The government ordered to close small blast furnace with 380 cubic meters or less inner volume by end of September. The closure reduces annual 34 million tonnes of iron making capacity.

However, Chinese steel demand is strong when the development extends to inner areas of the country, according to Japanese trading company. Chinese steel makers could try to keep the operation depending on the profitability, not on governmental order. Chinese steel production could increase later the year when iron ore price would decrease in October-December.