Chinese steel production surges on price jump

Chinese steel production has surged in response to a jump in prices, but capacity levels are concerning and some are tipping a correction soon.

Bloomberg reports that output for April was up 0.5 per cent compared to last year, reaching 69.42 million metric tons, according to National Bureau of Statistics. Averaged out by production day, a record of 2.314 million tons was set, with mills rushing to action to take advantage of higher prices.

“Given how high margins went, we’ve been expecting to see a supply response like this,”Ian Roper, an analyst at Macquarie Group, told Reuters.

“Chinese mills will likely look back to the export market as domestic oversupply reappears.”

The levels are not sustainable, according to leading producers, and levels need to be cut significantly compared to previously announced overall output targets. China’s capacity is 1.1 billion tonnes, and it plans to cut this by 100 to 150 tonnes over five years.

The government’s five-year plan also targets a consolidation among the top 10 producers, which made up 34.2 per cent of capacity at the end of last year. A goal of these making up 60 per cent of production in five years exists.

The capacity-cutting goals have been put on hold by price improvements, though this is not sustainable, said Vice Minister of Industry Xin Guobin.

“Prices have been improving since the end of last year but there hasn’t been any fundamental change in the underlying conditions of the market and no improvement in overcapacity,” he told Reuters.