Recent economic indices have reported that China's steel industry showed signs of recovery recently. From January to September China's total steel output was 501.8 million tonnes, up by 12.4%YoY. The monthly output broke the 60 million tonne level in June, reached61.983 million tonnes in August and 61.16 million tonnes in September, respectively. The total steel apparent consumption in January to August recorded at 438.312 million tonnes, up by 18.77% among which apparent consumption in August read at 61.493 million tonnes.
In Q1 this year, China's medium- and large-scale steel mills together made total losses of CNY 3.432 billion. However, the situation changed to positive in Q2, with total profits of CNY 3.313 billion. In quarter 3 the profit further increased thanks to steel price increases in June and July. However, the foundation for steel industry recovery may not firm enough. Steel prices started to decline in early August, notably known as the second round of market adjustment. On September 25th, the composite steel price index posted at 102.65, down 11.75% from the August 7th 116.32. From the macro economy level, China's economy is on a stable recovery track, indicating that steel demand sees no evident shrinkage and the market situation of steel products is mainly caused by a huge supply.
At the beginning of 2009, the country set a target of crude steel output at 460 million tonnes, but mills expanded their productions ambitiously supported by increasing prices. Through August, total crude steel output reached 370 million tonnes with daily output at 1.52 million tonnes, up 11.24% YoY. This production equals an annual output of 555 million tonnes. China's steel capacity was 660 million tonnes last year while the demand was only 500 million tonnes, resulting in about 25% of the total output relying on the international market. Clearly, the problem of overcapacity will be even more severe in 2010 as there are about 58 million tonnes of new capacity under construction.
Therefore, to take the actions quickly in controlling steel production is of significance to the stability and long term development of China steel industry. The related government departments have rolled out several regulations this year. As an industry features the strong characters of market and global resources distribution, the restriction of production in steel industry should combine the market mechanism and administrative measures together. However, this could never be an easy task and demands efforts in many years to come.
Source: Steel Guru
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