UMETAL-CHINA, Domestic steel prices have kept hitting fresh lows recently, and thus more and more steelmakers have lost interest in production expansion.

According to the China Iron and Steel Association (CISA), daily crude steel output of key steelmakers reporting to the CISA fell by 152.8 thousand tonnes or 8.35% from in mid-Aug to 1.6768 million tonnes in late Aug, the lowest level since late Mar this year.

Key steelmakers' average daily crude steel output throughout Aug came to 1.7041 million tonnes, down by 94.7 thousand tonnes or 5.26% MoM.

"The data arouses doubt among market sources, who perceived there should not such a big cut in production," some Beijing-based analyst said.

In fact, quite a few steelmakers have swung back to losses due to steel price slumps. Partial mills trimmed production on tight capital, and it is reasonable that the capacity utilization has dropped, he explained.

According to a report from the marketing and management department of Laiwu Steel Group, steel futures kept notching new lows since Aug, and billet prices dipped to an 8-year trough. In the past month, spot steel prices were falling amid subdued terminal demand, and the construction steel market, in particular, saw a much larger decline.
The said analyst attributes steel prices constantly hitting new lows to several factors. Firstly, the market is oversupplied, but steel production keeps at high levels and demand remains weak under slow economic growth. Secondly, the market is plagued by liquidity crunch. Banks started to limit loans to the steel sector from 2011, and their credit tightening is worsening, causing a severe capital shortage in the industry. Thirdly, production cost moves lower. Production ramp-up of overseas miners adds to the serious excessive supply and leads to sharp declines in raw materials prices.

"Enterprises in the sector have been faced with growing difficulties in operating since 2011. A large bulk of steel traders exited the industry in 2012, while steelmakers began to be restructured from 2013 and many of them were forced to stop production or go bankrupt due to capital chain break," the analyst added.

Laiwu Steel Group expressed strong bearishness about the coming market in its report, citing the failure of stimulus measure implementation, the unchanged sluggish property market and tight cash.

The steel market is predicted to continue seeking for the floor in Sept. (FROM CUSTEEL)