Singapore — The outlook for China's steel market is the bleakest it has been for several years as high steel production, falling new orders and rising inventories combine to put intense pressure on domestic steel companies, latest S&P Global Platts data shows.
S&P Global Platts China Steel Sentiment Index fell to just 8.42 points out of a possible 100 in June, the second lowest reading since the index began in early 2013.
The headline CSSI, which measures the outlook for new steel orders over the coming month, fell by 4.37 from 12.47 in May. It was the lowest reading since February 2015, and the fourth consecutive monthly decrease.
A reading above 50 indicates expectations of an increase/expansion and a reading below 50 a decrease/contraction.
The outlook for steel prices dropped by 11.77 points from the previous month to 14.22 in June, the weakest reading since last November.
Market participants surveyed expected crude steel output to stay at a similar level to May over the coming month, but saw steel inventories rising due to subdued downstream demand. June-August is a seasonally quieter period due to hot weather slowing construction activity and heavy rain in southern China curbing demand.
Rising raw materials prices have also eaten into margins, with Platts estimating many mills were producing at cost on June 17, when the IODEX 62% Fe iron ore benchmark hit $112/mt CFR China, the highest since April 2014. Some mills in northern China's Hebei province are understood to be making a loss at current price levels.
At this stage, there is no talk of cutting steel output among Chinese mills as most market participants expect Beijing to stimulate the economy in the third quarter through looser monetary policies and infrastructure investment.
-- Analysis by Zhang Jing, Sylvia Cao, Crystal Hao, Dai Yuelin and Fay Gao, firstname.lastname@example.org
-- Edited by Wendy Wells, email@example.com