China's daily June crude steel output hits record

China June crude steel output hits record, renews concerns.

China's daily crude steel output in June rose to a record average of 2 million metric tons as steelmakers ran mills near full capacity, despite weaker demand in some key end-user segments, to maximize profits amid falling margins.
The strong production rates reflect fairly resilient construction activity, but demand is still soft in the automotive and home appliance segments, amid price cuts by steel mills and falling margins that are forcing traders out of the market. Data from the National Bureau of Statistics Wednesday showed June crude steel output rose 11.9% from a year earlier to 59.93 million metric tons.
In the first half of the year, the country produced 350.54 million tons, up 9.6%. "Steel mills are maintaining high utilization rates of 90%-95% though market demand isn't good, as scale of production is very important during times like these," said Henry Liu, head of commodities research for Mirae Asset Securities.

Despite the high output levels of crude steel, a barometer of overall industrial health, Chinese mills have been cutting prices almost steadily through the first half.
More than 20 steelmakers cut July prices by CNY70-CNY200/ton in a single week in June, taking the lead from bellwether Baoshan Iron & Steel Co. amid expectations of slowing demand.
"Mills don't dare cut output now, as banks will take away their credit if they do," Liu said.

However, key economic indicators released Wednesday suggest some parts of China's economy are doing better than others.

Fixed-asset investment in non-rural areas, a closely watched indicator of construction activity, rose 25.6% in the January-June period from a year earlier.

Demand for steel products used in cars and home appliances is weaker compared with construction steel products such as reinforced bar and wire rod, analysts said.

Falling steel prices are unlikely to recover as mills raise output levels and traders retreat from the market due to declining trading margins, Liu said.

Abundant supply and volatile prices may have prompted a fresh edict issued two days ago by China's government, identifying 2,255 companies nationwide that must slash obsolete output capacity.
The main target was the steel sector, with the government aiming to shut 31.2 million metric tons of iron-foundry capacity at 96 steelmakers and 27.9 million tons of steelmaking capacity at 58 companies.

China's steelmakers produce half the world's steel and the government has long been pushing industry leaders to consolidate and add value to an energy-sapping sector where unbridled production has often resulted in turf battles and volatile prices.
However, the drive to cut capacity--a regular feature in industrial policy--isn't expected to deliver much results among provincial governments that depend on mill revenues.

"The best way to reduce output is to reduce power," Liu said, referring to electricity shortages that are expected to worsen this summer.

Government data on Wednesday also showed domestic iron ore production in June rose 27% to 124 million tons. Output in the first half rose 22% to 575 million tons.
For pig iron, an intermediate product, June output rose 11.6% to 54.9 million tons. Output in the first half rose 8.4% to 324.6 million tons.