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China Sets New Steel Production Record Ahead of Winter Curbs

China’s steelmakers pushed production rates to record levels last month, according to official data, underscoring a bullish short-term picture for the world’s biggest market even as risks of a demand slowdown rise.

Output of crude steel rose 7.5 percent on year to 80.85 million metric tons, the statistics bureau said Friday. That means a daily rate of 2.695 million tons, beating the previous all-time high of 2.673 million tons posted in June. Output for the first nine months of the year climbed 6.1 percent to a record 699.42 million tons.

China’s mills have boosted production to benefit from an unusually long period of high prices and healthier profits. Steel rebar, used in construction, rallied this week to the highest this year, while iron ore prices surged to a March high, ahead of winter production curbs to fight pollution that should continue to offer support to the nation’s steel markets.

“Steel profitability has been quite high, so they are racing to produce more to maximize profits before the winter,” Helen Lau, analyst at Argonaut Securities Asia, said by phone from Hong Kong. Although market conditions are good now, on the demand side there’s the prospect of a slowdown that could erode profits and reduce production next year in the absence of any serious government stimulus, she said.

China’s steel industry, which accounts for about half of world output, has recovered from a crisis that peaked in late 2015 by shutting outdated or illegal plants, and enforcing tougher environmental standards. The anti-pollution measures should bolster prices for steel and iron ore in the medium term, Citigroup Inc. said in a note Wednesday.

There are some important caveats around China’s steel data, with industry observers frequently questioning whether the official figures reflect reality. Crude steel production probably fell by 1 or 2 percent in the first eight months of the year, Erik Hedborg, senior consultant at CRU Group, said in an email before the data. That compares with the government’s estimate of 5.8 percent growth over the same period.

Economic growth in China — embroiled in a trade war with the U.S. — slowed more than expected in the third quarter, with the statistics bureau citing an “extremely complex and severe international situation.” Steel demand in China won’t increase next year, the World Steel Association said this week, as it reduced its forecasts for global demand growth.

Output of primary aluminum rose 7.1 percent on year in September to 2.79 million tons, according to the statistics bureau. Production for the first nine months increased 4.2 percent to 25 million tons.

Source: Bloomberg

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