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Chinese steel mills cut output to maintain prices

By Nie Peng (chinadaily.com.cn)
Updated: 2010-07-09 17:27

Chinese steel mills are cutting their output to reduce losses as the country's steel inventory reached a historic high and domestic steel prices continued to drop for more than ten weeks in a row, the Economic Information Daily reported Friday.

Steel prices on the international market are also plunging, driving iron ore prices lower.

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China's steel industry faces an increasing risk of losing money as inventory stopped dropping in May and rose 74 percent in July year-on-year, to 15.09 million tons, the report said, citing Beijing-based consulting firm Mysteel.com.

"Steelmakers will try their best to avoid cutting output unless losses are unbearable," a source with a steel mill told the paper.

The source said steel prices have fallen below what many steelmakers can endure.

Many of the country's small and medium-sized steel mills have begun to partly shut down; larger ones are focusing on repairs and maintenance instead of production to prevent steel prices from further tumbling, the report said.

Xu Xiangchun, chief analyst at Mysteel.com, said losses can be eased to some extent as steelmakers begin to cut output in July and August and raw-material prices drop, and he expected the steel market to reach equilibrium in the fourth quarter of this year, the paper reported.

According to statistics from China's top economic planner, the National Development and Reform Commission, the average price of the country's major steel products fell by 8 percent to 4,597 yuan per ton on June 30 from 4,998 yuan on April 21.

Figures from the National Bureau of Statistics showed that the country's output of crude steel has remained high since early this year, with the monthly output exceeding 50 million tons from January to May. The output in May reached 56.14 million tons, up 20.7 percent from a year ago. June's output will still be at least 52 million tons, the paper estimated based on mid-June figures from the China Iron and Steel Association.