China July daily crude steel output slips but supply glut woes continue

China's daily crude steel output during July 1-10 slipped 0.8% from late June to 2.872 million mt/d, but production still remained 2.6% higher year on year, data from the China Iron & Steel Association showed July 13.

The supply glut in China's domestic market have continued to show no signs of easing so far in July, pressuring steel prices further, and showing that further output cuts would be needed to stabilize prices, industry sources said.

China's daily pig iron output during July 1-10 fell 1.5% from June 21-30, but was 5.5% higher on the year at 2.478 million mt/d, according to the CISA data.

As of July 10, finished steel inventories at mills monitored by the CISA were 28.4% higher year on year at 18.05 million mt.

The supply glut have weighed on domestic hot rolled coil and rebar profit margins, which were at minus $65/mt and minus $31/mt on July 12, according to S&P Global Commodity Insights data.

A few market sources said the decline in steel output has remained slow despite mills operating at losses because most steelmakers remained reluctant to widen their output cuts fearing it would impact their market share and local GDP growth.

"But I think sooner or later the Chinese steel mills will have to [widen] steel output cuts, or the oversupply could only get worse and further weigh on steel margins in the coming months," a market participant said.

If China's daily crude steel output stay on early-July's level of 2.872 million mt for the rest of 2022, the country's crude steel output during July-December will be 12% higher than in the same period of 2021, according to S&P Global calculations based on data from the CISA and the National Bureau of Statistics.

For 2022, steel output will be around 1.7% higher on the year, the calculations showed.

China's crude steel output fell sharply in July-December 2021 to an average of 2.565 million mt/d, partly due to the government's mandated output cut orders aimed at decarbonization and partly due to shrinking end-user demand.

Most market sources said they did not expect much year-on-year growth in steel demand in the second half of 2022 as a weak property sector continues to drag down demand.

As such, the current steel output level was still too high to strike a balance with demand, the sources said.