China's Late September Steel Output Drop Sparks Market Caution

China's Steel Production Trends: September Insights

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China's recent production of pig iron and crude steel during September's latter part witnessed a slight decline, with figures showing a 4.3% drop to 2.335 million metric tons for pig iron and a 3.1% decrease to 2.692 million metric tons for crude steel compared to the preceding September 11-20 period. These statistics were revealed by the China Iron & Steel Association on October 10.

Nevertheless, industry insiders have hinted that these numbers might not fully capture the true extent of production, citing the subdued steel prices during the same timeframe as an indicator. It's worth noting that some experts are anticipating a slowdown in China's steel production for October due to rising stockpiles and decreasing prices. However, these potential cuts are not expected to significantly bolster steel prices, according to these sources.

When we examine the broader picture, the average daily production of pig iron and crude steel for the entire month of September stood at 2.406 million metric tons and 2.76 million metric tons, marking a 2.4% and 4.8% year-on-year decrease, respectively. This analysis is based on calculations using data from the China Iron & Steel Association and the National Bureau of Statistics. Notably, pig iron output in September remained nearly unchanged compared to August, while crude steel production experienced a 1% decline.

As of September 30, finished steel inventories at mills and spot markets, as monitored by the CISA, amounted to 24.21 million metric tons. Although this represented a slight 0.8% drop compared to the previous year, it was still 6% higher than the corresponding period in 2021. This surge in inventory levels can be attributed to the impact of China's rigorous lockdown measures in 2022, which curtailed overall steel consumption.

Some industry sources have expressed skepticism about the reported decline in steel production levels for September, asserting that they haven't heard of any substantial production cuts occurring across the country. Concurrently, iron ore port stocks have shown a consistent decrease throughout September, signaling that steelmakers have not drastically reduced their raw material acquisitions.

According to data from CEIC, iron ore port stocks in China decreased from 117.5 million metric tons in mid-September to 112.8 million metric tons at the end of September, compared to 120.4 million metric tons at the beginning of the month.

Due to robust steel production and an extended national holiday period in early October, steel inventories surged rapidly, exerting downward pressure on China's steel prices in the post-holiday market.

As of October 9 in eastern China, inventories for hot rolled coil in Shanghai were nearly 80% higher than the same period last year, while rebar inventories in Hangzhou saw a 35% year-on-year increase, as reported by industry sources.

S&P Global data indicated that Chinese domestic prices for hot rolled coil in Shanghai and rebar in Beijing dipped to Yuan 3,730/mt ($511/mt) and Yuan 3,763/mt, respectively, on October 10. This represented a decrease of Yuan 90/mt and Yuan 51/mt from the end of September.

At present, sales of hot rolled coil were barely breaking even or even incurring slight losses, while rebar sales were experiencing losses of around Yuan 150/mt, according to mill sources in eastern China.

Although China's steel output may slow in October due to weakened profit margins, it is unlikely to witness a substantial reduction in production as there have been no government-mandated output cuts thus far. Mills appear to be in a wait-and-see mode, with none eager to initiate output reductions and instead preferring to observe the actions of their counterparts in the industry.

Source : Platts