Steel production in China continued to decline in mid-July

China's pig iron and crude steel production is likely to fall further in mid- to late July as more steel mills were forced to cut production due to mounting losses.

The reduction in steel production is expected to support domestic steel prices, which have fallen sharply since May due to weak demand and oversupply. However, any rebound in prices could only be modest as steel mills ease their cuts in steel output once steel profit margins recover, industry sources told S&P Global Commodity Insights.

S&P Global estimates based on market sources that due to recently scheduled blast furnace maintenance activities, which are mainly taking place in eastern and northern China, daily pig iron production is likely to decline between July 15 and July 31 at least 40,000 tons per day.

According to S&P Global, as mills cut production, domestic rebar profit margins fell from minus $27/t to minus $62/t between July 8 and 15, and hot-rolled coils from minus $37/t, according to S&P Global. US dollars per ton to minus 102 US dollars per ton.

According to the China & Steel Association, daily pig iron production in China from July 1 to 10 fell 3.3% compared to June to 2.478 million tons. This means that daily production until the end of July can be further reduced by a maximum of 2.438 million tons. However, this level will still be above 2.35 million tons in July 2021.

In addition to the oversupply, the decline in crude steel production in mid- to late-July will be even slower as cheap scrap has recently caused some electric arc furnace steelmakers to make losses, allowing them to resume production, according to industry sources.

“Steel production cuts could support steel prices, but only temporarily, because once demand improves, steel production will quickly recover and undermine the upward momentum again,” a market source said.

Some sources believed that demand for steel, especially in the infrastructure sector, would improve significantly in August and September, but the increase in steel production would contain the increase in steel prices.