Steelmakers cut output in face of falling prices
Some mainland steelmakers are tentatively curbing output by starting plant maintenance as weak prices squeeze margins.
However, the cuts look too little and too late to support steel prices, which are at their lowest level in more than nine months.
With a glut in supply persisting, an extended period of weak steel prices on the mainland, the world's largest consumer and producer of steel, is likely to put more pressure on iron ore. Prices for ore have fallen by a third this year and are set to dip further as more ore comes on stream.
Steel mills, which ramped up production earlier in the year on hopes for strong demand, are reluctant to make decisive cuts even as the mainland's economic growth falters, for fear they could lose market share and that banks could pull back credit.
Hu Yanping, an analyst with the consultancy Custeel.com said: "Steel production is starting to slow, and this will extend to July. But the maintenance programmes will not offer much support for prices." Hu said mills would be forced to reduce prices further next month.
Baoshan Iron & Steel, the biggest listed steelmaker by market value, better known as known as Baosteel, slashed prices for the first time in nine months this month and is expected to cut again next month, slicing razor-thin margins further.
Some major mills, such as Hebei Iron & Steel, have scheduled partial maintenance for this month, while the large private mill Rizhao Steel has already started repair work, Custeel said.
The consultancy estimates that production cuts at steel mills it surveyed will reduce crude steel output by 1.24 million tonnes over the whole maintenance period, and hot-rolled coil by 600,000 tonnes.
But that is a drop in the ocean when set alongside bulging stockpiles, with China Iron and Steel Association data showing steel product inventory at large mills at about 13.7 million tonnes. Inventories held by traders are hovering at about 20 million tonnes, the consultancy Mysteel said.