Asia Steel-China prices drop eases as mills cut output
Chinese spot steel prices eased 0.8 percent in their fifth consecutive weekly fall, but the pace of their decline slowed, as mills started reducing production amid rising inventories and falling prices.
After a months-long rally to a 10-month high in early August, steel prices in China have turned lower and prices of benchmark hot-rolled coil fell to around 3,617.5 yuan ($529.7) a tonne this week from 3,645 yuan last week quoted in south and east China, for a drop of 16 percent in just one month, data from Metal Bulletin showed.
For a graphic on China’s steel prices, click here
"Traders have high inventory and they are unlikely to resume buying actively until stockpiles are lowered to a more appropriate level," said a trader at an international trading firm.
Inventories of construction and flat steel products in Chinese merchant warehouses reached nearly 11 million tonnes last week, up 54 percent from a year ago and close to this year’s peak hit in March, as mills continue production at record rates and demand weakened on a sustained fall in steel prices.
Chinese steel output jumped 22 percent on the year to a record 52.3 million tonnes in August, marking a fifth monthly rise, and production in the first 10 days of September totalled 16.66 million tonnes, suggesting output growth would stay robust this month, although some mills have started cutting output.
But some small mills in China’s top steel-producing province have cut output due to lower steel prices, which a Macquarie analyst estimates would reduce China’s steel output by 2-3 million tonnes in September.
"We expect the (Chinese) steel prices to consolidate until October given that… inventory level is still high," Deutsche Bank analysts said on Thursday.
But the demand side is seen continuing its improvement, bolstered by the government’s stimulus package and recovery in the auto and home appliances sector.
Lakshmi Mittal, chief executive of ArcelorMittal, said on Wednesday Chinese steel demand would rise more than 15 percent this year, up from his previous forecast 10 percent growth this year.
In the Shanghai Futures Exchange market, rebar futures for October delivery SRBV9 fell 3 percent to 3,693 yuan on the week and September wire rod futures SWRV9 shed 2 percent to 3,625 yuan.
In Japan, August steel output fell 18 percent from a year ago, but it rose 8.5 percent from July, as big mills including Nippon Steel (5401.T) have boosted output to meet a pick-up in orders from auto makers and exporters.
"Much of the capacity that was idled is being restarted but if companies find that it is not that easy to get production back on line smoothly, actual supply in the market may not rise as much as expected," Goldman Sachs analysts said in a note.
Nippon Steel, the world’s No.2 steelmaker, said on Wednesday it would restart a blast furnace at its Kimitsu plant early next month, as another furnace at the plant was continuing to suffer problems.
