China, maker of half the world’s steel, probably boosted production to a record in April as mills fired up furnaces and domestic prices surged to 19-month highs, according to Sanford C Bernstein & Co Average daily output may have eclipsed the previous high of about 2.31mn metric tonnes in June 2014, said Paul Gait, a senior analyst in London. Producers ramped up supply as local demand rebounded and prices jumped as much as 69% from their November low, generating the best margins since 2009.
About 5% of total capacity, or 60mn tons, was shut last year as the industry suffered its worst ever losses, according to consultancy CRU Group.
“With steel prices moving up the way they have, that clearly puts the steel sector on a better footing in the short-term,” Gait said in a phone interview this week. “We’re seeing a reversal of the negative momentum last year and we’re hoping to see some kind of stabilisation.” The fortunes of the country’s steel companies have been transformed as policy makers talked up growth and a credit-fuelled binge revived property and infrastructure spending. Steel reinforcement bar used to strengthen concrete soared to 2,787 yuan ($428) a ton in April, the highest intraday level since September 2014, and inventories have shrunk about 28% in eight weeks, according to Shanghai Steelhome Information Technology Co
Losses among China’s producers will narrow to about 10bn yuan this year and they may even make a profit, according to the China Iron & Steel Association last month. The mills posted more than 100bn yuan of losses in their core business in 2015, the group said earlier. The body sees exports sliding 11% to 100mn tons this year as local demand strengthens.
Chinese steel production shrank last year for the first time since 1981, contracting 2.3% to 804mn tonnes, government data show. Output of 70.65mn tons in March 2016 was the most ever for a full month, but short of an all-time high when converted to average daily rates.
Increasing supplies mean the surge in domestic prices is not sustainable, Fitch Ratings said in a note in April, adding that output probably increased further last month as suspended mills were fired up.
The jump in futures was also fuelled by retail speculators piling into the market in the hope of profits, spurring exchanges to raise transaction fees and margins to make trading more expensive. That’s triggered a drop in prices, with rebar slumping 18% from its intraday peak on April 21 and posting its worst weekly performance since trading started in 2009.
Production expanded in April and could increase further in May because of the opportunity to make money, Curtis Zhu, a London-based analyst at consultancy Wood Mackenzie, said by phone. Supply is rising even as the government seeks to cut as much as 150mn tonnes of capacity over the next five years.
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