Chinese steelmakers mulling production cuts amid sluggish market

The prolonged sluggishness in China’s steel market and a squeeze on profits have led some steelmakers to consider production cuts in a bid to support prices.

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“We have already been losing money at current price levels, and could suffer more if prices continue the downward trend. I think this is not endurable, thus we might consider holding our prices by controlling output,” a northern Chinese mill source told Steel First.

“Steelmakers are feeding on August raw materials at the moment and they are making minor losses of about 100-200 yuan ($16-33) per tonne.

“When we move into November, especially late November, mills will be feeding on higher-priced raw materials from the September bookings. We may cut production by then to avoid larger losses,” an industry analyst in Beijing said.

Slack demand from end-users during winter could also lead to a drop in steel production from November onwards, a source at a north-eastern Chinese mill suggested.

China’s steel production has actually been showing signs of slowing down, with domestic steel prices falling since September.

The country produced 2.1271 million tpd of crude steel during the first ten days of October, down 1.1% from the last ten days of September, according to the latest estimates by China Iron & Steel Assn.

Tangshan’s billet price fell by a total of 180 yuan ($29) per tonne between August 30 and October 21, according to Steel First’s price archive.

Although the billet price recovered by 20 yuan ($3) per tonne on Tuesday October 22 driven by improved sales to major end-users including sections producers, the increase is unlikely to be sustainable given that steel mills are generally holding on to plenty of unsold products, market sources say.

Meanwhile, a Shanghai-based analyst argued that it would be difficult for mills to make big movements in production cuts.

“I don’t think they will shut down blast furnaces or something else. They could at most lower their blast furnace utilisation rate or plan some maintenance,” he said.

Currently, only several Chinese steelmakers are conducting maintenance on a small scale. Blast furnace utilisation rates remain high at nearly 94% in Tangshan city, according to the analyst.

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