China’s production of pig iron and crude steel saw a decline in late May as the construction and manufacturing sectors entered their off-peak season. This dip in production continues to pressure steel prices, primarily driven by weak domestic demand.
According to the China Iron and Steel Association, the average daily production of pig iron and crude steel at member mills was 1.913 million metric tons (mt) and 2.091 million mt respectively during the period from May 21 to May 31. This marks a decrease of 3.5% and 4.9% from mid-May, and a significant year-over-year reduction of 9.9% and 12.7%.
In April, the output from member mills encompassed 81% and 71% of the total national production, hinting at a healthy overall trend. However, projections for May indicated that production levels would not surpass those of April or the previous year.
A trading source noted a continuation of the downtrend into June, influenced by declining demand. Production could possibly fall below last year’s levels, yet steel prices are expected to remain stagnant due to persistently low domestic demand.
As of June 9, prices for hot-rolled coil and rebar were assessed at Yuan 3,220/mt and Yuan 3,080/mt, showing declines of 2.1% and 2.3% from late May, and significant year-on-year drops of 15.7% and 16.8%. Reports suggest that while pig iron and crude steel output is decreasing, the slow rate of this decline is hampered by unfavorable margins within many Chinese steel mills.
Demand for construction steel has been declining, exacerbated by seasonal factors and a sluggish property market. The operating rate for major engineering machinery in May was recorded at 59.5%, indicating a slowdown from both April and the previous year.
Some mill sources expressed concerns regarding potential weaknesses in the manufacturing sector due to the expiration of recent export benefits. Despite these challenges, forecasts indicate that steel exports from China might remain robust, potentially exceeding 10 million mt in May.
Strong export performance could alleviate some pressure in the domestic market, although it is believed that the decline in local demand will overshadow any gains from production cuts. By May 31, total finished steel inventories at monitored mills and markets stood at 23.24 million mt, reflecting both a 3.7% decline from April and a 7.7% decrease year-over-year, attributed primarily to market destocking against a backdrop of weak demand and uncertain market conditions.