China's rising steel output in May exacerbates supply glut

China's daily pig iron output during May 1-20 posted a year-on-year growth for the first time since May 2021 while daily crude steel output also reached its highest level since June 2021, data from the China Iron & Steel Association showed May 26.

The rising steel production will continue to weigh on prices into June and worsen the oversupply situation as domestic steel demand remains dismal due to pandemic-led disruptions, industry sources said.

Daily pig iron and crude steel output reached 2.618 million mt and 3.155 million mt May 1-20, up 2.3% and 2%, respectively, from the average levels in April, according to the CISA.

China's pig iron output in the first 20 days of May was 3.9% higher on the year. While crude steel production was still 1.7% lower on the year, it improved from a 5.2% year-on-year drop seen in April.

As of May 20, finished steel inventories at steel mills and spot markets monitored by the CISA rose to 32.06 million mt, 20.1% higher than the same period of 2021.

The rising steel inventories reflected steel demand in both construction and manufacturing sectors was recovering slowly due to the virus outbreak, sources said.

Whether the demand recovery would gain pace in June remains a question, as movement restrictions continue in China's most developed regions, such as Beijing, Tianjin and Shanghai, they added.

Chinese steel prices have remained under pressure for a while now as the supply glut continue.

Chinese domestic rebar prices dropped 8%, or Yuan 412/mt ($61/mt), from the start of May to Yuan 4,820/mt on May 25, S&P Global Commodity Insights data showed.

Market sources said some electric arc furnace steelmakers started reducing production from around mid- and late-May as they faced losses, but most of the integrated steelmakers using blast furnace and converter route kept production steady.

"Losses at integrated steel mills have generally remained too small to trigger output cuts, and some are still marginally profitable," a source said.

Meanwhile, steel demand may not see a strong rebound in June as COVID-19 disruptions still remain, the source said.

"Eventually, I think mills will have to cut production to stop losses from widening."