China: CISA sounds warning bell on excess production

• First 3 qtrs see squeezed margins amid supply glut
  
  
• Apparent consumption drops over 6% in 9MCY'24
  
  

Mysteel: Steel supply surplus in China during the first three quarters this year caused profit margins among domestic steelmakers to narrow substantially, sounding an alarm for mills to exercise caution in planning production, said Luo Tiejun, Vice Chairman of the China Iron and Steel Association (CISA), at the General Assembly of the China Association of Metalscrap Utilisation in Beijing on 24 October.

Over January-September this year, China's total crude steel production dropped by 3.6% y-o-y to 770 million tonnes (mnt), while the apparent consumption of crude steel slid by a more significant 6.2% y-o-y to 689 mnt, according to CISA's data.

Under such circumstances, the overall profits earned by CISA's member mills tumbled 55.8% y-o-y to RMB 29.2 billion ($4.1 billion) in the first nine months, with 46% of these mills reporting losses, the data showed.

Since China's central government unveiled a package of policies to boost domestic monetary and property markets late last month, prices of ferrous commodities in the country have experienced a quick recovery, Luo noted.

"The price rally prompted many steelmakers that had previously halted production amid losses to ramp up output rigorously again, leading their in-plant steel stocks to surge," he added.

However, now that market sentiment has calmed down and fundamentals have started dominating prices again in October, steel mills' strong zeal for production has become a threat to offers for their products, Luo stressed. "Since actual steel demand has not shown any strong growth, steelmakers should cautiously control their output," he stated.

"Undisciplined production will destroy the fragile profit margins," Wang Jianhua, Mysteel's chief analyst, made the same point at the assembly.

Mysteel's survey showed that by mid-October, the daily average production of hot metal among the sampled 247 domestic mills reached 2.34 mnt, a relatively high level for this year.

"The same thing happened once in June this year, when the hot metal output reached intra-year high, and that caused steel prices to slump through July-September," Wang recalled. "If steelmakers continue to maintain high production levels, they risk repeating that scenario," he warned.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.