Domestic steel output headed for further contraction: report
Domestic steel output fell in August and is likely to contract further during the rest of months this year, an industry report said on Tuesday.
Experts noted the trend is a result of sagging market demand and the government's pledge to cut overcapacity.
Daily production for the China Iron and Steel Association (CISA)'s member companies amounted to 1.76 million tons in early and mid-August, according to a statement published on the CISA website on Tuesday.
Based on that number, it is estimated that the daily output of crude steel was 2.23 million tons nationwide in early and mid-August, the CISA said.
The figure represented a 3.3 percent increase from July, but it still lagged behind the average of 2.3 million tons of daily output in the second quarter of 2016. In the first seven months of 2016, national pig iron output dropped 2.25 million tons year-on-year to 467 million tons, said the report.
The China Iron Ore Price Index also declined in August after two months of consecutive gains. It dropped 2.86 percentage points from July to 212.77 points at the end of August, the statement noted.
"One of the reasons behind the phenomenon is the plunge in steel demand amid global economic weakness, as the amount produced is determined by the demand side," Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times on Tuesday.
For example, steel exports decreased 5.8 percent from June to 10.3 million tons in July, according to statistics published on the website of the General Administration of Customs.
Meanwhile, China is increasingly confronted with steel protectionism in foreign markets.
In August, the EU imposed anti-dumping duties ranging from 19.7 percent to 22.1 percent on China's cold-rolled steel, according to a statement published on the Ministry of Commerce's website.
Such measures will impose difficulties on China's steel exports in the rest months of this year, but what's worse is "the rapid drop in domestic demand brought about by the slowdown in infrastructure construction," said Lin.
Besides, a number of second-tier cities, like Xiamen in East China's Fujian Province and Wuhan in Central China's Hubei Province, rolled out housing purchase limits or tightened loan policies in August, in a bid to cool the housing market.
"Typically, the use of steel in the construction sector represents around 40 percent of total consumption," Wang Guoqing, research director with the Beijing-based Lange Steel Information Research Center, told the Global Times on Tuesday. Wang said fewer apartments will be built by developers in response to local government policies.
This means domestic demand for steel will continue to decrease in the rest months of this year, Wang said.
Cutting overcapacity, an agenda that was in the spotlight during the G20 summit, has also played an important role, experts said.
The Chinese government has already stepped up efforts to address the issue. It vowed to cut steel capacity by about 10 percent or 150 million tons of steel in the next few years, with aims to reduce steel production by 45 million tons this year alone.
As of July, the country had only achieved 47 percent of its annual steel reduction target.
"For the government, to fulfill its promises will be challenging this year, and more work needs to be done to meet the schedule," Wang said. "As more measures against overcapacity take effect, steel output is likely to see a rapid decline in the rest months of this year."
