China producing more steel, but who is using it?
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China producing more steel, but who is using it?

Steel output rises in May in China, but reports indicate inventories are building up there.

June 24, 2022

Steelmakers in China produced some 4 million tons more steel this May compared with April, but a recent media report indicates much of that steel is staying in inventory.

Figures provided by China’s CISA steelmaking association to the Brussels-based World Steel Association (Worldsteel) show May steel output in the People’s Republic of China of 96.6 million metric tons. That represents a 4 percent increase from the 92.8 million metric tons of output in April.

Just one day after Worldsteel released its figures, however, an online article from CNBC reported that “steel inventories are slowly piling up in the warehouses of the country’s biggest steelmaking hub, the northeastern city of Tangshan, as well as in the provinces of Jiangsu and Shandong.” CNBC cited consultancy Wood McKenzie, which had spoken with steel mill owners, as its source.

The consultant, Simon Wu, was quoted by the news network as saying, “There’s negative energy all around. The steel industry is just not making any profit.”

Problems affecting the Chinese economy include COVID-19-related restrictions and flooding in South China. Perhaps most importantly for the steel sector, however, is an ongoing double-digit monthly drop in apartment sales. Steel used to build apartment towers, retail centers and infrastructure projects have been the drivers of China’s emergence as the world’s largest steel producer.

Year to date, however, China has produced 8.7 percent less steel than it did in the first five months of 2021, according to Worldsteel.

The property market cool down in China has created a scenario where the central bank there is taking action to lower mortgage interest rates. That is in contrast to most of the rest of the world, where central banks are increasing rates in an attempt to tame inflation.

While the CNBC report indicates China’s steelmakers are gloomy about profits, steel producers in the United States and Canada have been announcing record earnings and positive forecasts.

However, because for the past decade or more China has produced and consumed up to half of the world’s steel, the situation in China is likely contributing to falling steel (and ferrous scrap) prices in many parts of the world.

Of greater pertinence to the U.S. scrap market, steel output in Turkey dropped month-on-month, falling from 3.4 million metric tons of output this April to 3.2 million tons this May, according to Worldsteel.

Providing better news to scrap exporters, India’s output rose to 10.6 million metric tons this May, up nearly 5 percent from the 10.1 million tons produced in April.