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Kallanish Kallanish

Knowledge matters Knowledge matters

July, 22nd 2018

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MAR 14
06:22

Chinese steel output surges, demand falls

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Official data for steel production in China in the first two months of the year show strong year-on-year growth. The surge in steel inventories in February had already prepared the market for a large output number but the implications for market prices remain bleak, Kallanish notes.

China officially produced 136.82 million tonnes of crude steel in the first two months of 2018, up 5.9% year-on-year, according to the National Bureau of Statistics (NBS). The closure of most induction furnaces (IF) in the last year or so means that the y-o-y change in production is exaggerated. However, in terms of actual supply to the domestic market, the fall in net exports has added to the y-o-y change.

Kallanish calculates apparent steel consumption (compensating for IF output, net exports and yield loss) as up 5.32% y-o-y at 122.7mt. That is a figure well above real demand growth. Total inventories increased by an estimated 79.5% from the end of the year to the end of February, and by 58.0% in February alone. That implies estimated end user buying was actually down -1.81% y-o-y at 80.29mt.

Chinese traders have already noted that demand has been very weak. There are several factors that mean the data may still be more positive than the reality. Firstly, there have been reports in recent weeks of inventory stuck on river transport on their way to southern Chinese ports. Secondly, some material has been transferred to export inventories, which are not always counted in the data. Another reason why traders may be losing out is that a greater proportion of demand is being generated by large and government-led projects which buy direct from mills, bypassing stockists.