What is behind China's record steel production?

In June, China's giant steel sector smelted 72.78 million tonnes. This is equivalent to an annual production of 891 million tonnes. The previous monthly record was set in May 2014 at 71.16 million tonnes. This year, however, this historic rate has been exceeded in every month since February.

There may be some statistical smoke behind this record production run. But the underlying reality is that China's steel mills are being stimulated to boost production in the face of strong prices. Steel rebar, used primarily in the construction sector, traded in Shanghai last week at levels not seen since late 2013.

There are strong fundamentals for this price performance, but there are many speculative ones as well. Beijing is no doubt wary of Trump's national security investigation into pig iron imports, but the country's own investors could be the most pressing threat to Chinese steelmakers. It could be Chinese funds, not the US president, who have surpassed the current positive momentum in China's steel sector.

In addition, the markets do not move in a straight line and prices will correct at some stage. The ensuing danger will lead to erratic stampedes and exacerbated weakness in pricing.