China steel output cuts to extend in Q4

Updated: 2010-10-22 11:27
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China's crude steel output dropped in September, with an industry offical saying it may continue to fall over the fourth quarter as the world's biggest producer tries to meet pollution and energy efficiency targets.

Luo Bingsheng, deputy chairman of the China Iron and Steel Association (CISA), said further measures aimed at curbing energy use were likely to erode output in the remaining months of the year. In September, production dropped 7.1 from August, according to the National Bureau of Statistics on Thursday.

With the construction sector set to down tools during winter, the capacity closures were not expected to offer much support for prices in the coming months, and mill margins could come under renewed pressure because of increasing raw material costs.

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"Over the period China will step up its energy saving and emission reduction efforts and a number of provinces and cities will impose strict electricity restrictions, which will bring total steel output down," he told an industry conference.

Still, iron ore imports are likely to rebound in coming months as steel firms embark on a period of restocking while prices remain relatively low, according to Xu Xu, chairman of the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters.

"Chinese domestic steel mills have curbed purchases because of previous high inventories and prices, and now they need to replenish as stocks and prices fall, which will support iron ore imports for the fourth quarter," he told the conference.

CISA Chairman Shan Shanghua said in September that total ore imports in 2010 were likely to be lower than the record 627.8 million tons shipped to China last year.

Iron Ore Imports

China's iron ore imports in September stood at 52.6 million tons, up 17.9 percent compared to the August figure, which was the lowest in 20 months.

For the first nine months, it stood at 457.6 million tons, down 2.5 percent compared to the corresponding period of 2009.

Chinese steel mills had an average of 43 days of imported iron ore inventories by Oct 15, up from 42 days in the middle of September, according to data from industry consultancy Mysteel.

CISA said earlier this year that high prices of imported iron ore would encourage local miners to step up production and help ease the country's dependence on foreign supplies.

China produced a total of 93.55 million tons of iron ore in September, up 9.4 percent year-on-year but down 6.1 percent compared with August, according to the statistics bureau.

Total domestic ore output over the first nine months rose 25.9 percent to reach 780.24 million tons, but iron content in China is generally far lower than those overseas.

CISA's Luo said the industry would feel the effects of a nationwide campaign to meet the 2006-10 pollution and efficiency targets, but it is still suffering from a supply glut.

Glut to Remain

"The oversupply for the Chinese steel sector hasn't been substantially improved despite falling inventories, and will continue to affect the sector," he said.

Figures released on Thursday showed that China produced 47.95 million tons of crude steel in September, down 5.9 percent from a year ago.

But despite Beijing's ceaseless attempts to rein in the unruly steel sector by encouraging mergers and eliminating small private operators, total output over the first nine months of the year still rose 12.7 percent to 474.5 million tons.

"Steel producers will continue to produce at current prices where it is possible to make cash profits, and the privately-owned small producers -- which are more nimble in managing production rates -- will increase production when prices rise," said Su-Aik Lim, an analyst with Fitch Ratings in Beijing.

Big steel producing provinces such as Hebei and Jiangsu cut steel capacity over September in order to meet their energy efficiency targets for 2010, but CISA admitted this week that many mills had already been given permission to restart.

The last three months of the year would also see a further decline in China's steel exports, and blamed the rise in protectionism in foreign markets as well as the rising yuan and the removal of export rebates, Luo said.

Still, he said profits at China's steel mills this year are expected to end higher than 2009, though the growth rate was likely to be low.