Iron ore prices are expected to come under more pressure today after a surprise slump in China's crude steel output in August.
Data from the National Bureau of Statistics, released on Saturday, showed that crude steel output fell by 6.1% to 77.92 million tonnes in August, down from July’s 82.94 million tonnes. This marks the third consecutive monthly decline.
Moreover, the output showed a worrying 10.4% slide compared to August 2023, making August's output the lowest since December's 67 million tonnes.
As steelmakers continue to grapple with losses from declining steel prices, particularly in reinforcing rebar (rebar), which is heavily used in the slumping housing and construction sector, output for the first eight months of the year fell 3.3% compared to the same period last year, totalling 691.41 million tonnes. This was an acceleration from the 2.2% decline recorded in the seven months to July.
If not for a solid rise in exports, the monthly figure would have been even lower. Chinese steel companies exported 9.5 million tonnes of finished products, up 21% from July and 14% from August last year.
Exports for the eight months to August jumped 20% to 70 million tonnes, putting the country on track to surpass 100 million tonnes at the current monthly rate.
News of the decline will put pressure on iron ore prices, which weakened on Friday on the SGX platform but still ended marginally higher over the week. Iron ore futures ended last week at $US92.90 per tonne, up $US1.20 over the week.
Analysts expect output to pick up this month as some steel mills have resumed production, encouraged by improved margins.
China has yet to make any announcements regarding the timing and scale of its steel output cap this year. However, the chairman of Baoshan Iron & Steel Co, the country's largest listed steelmaker, has suggested that maintaining flat production levels this year may not resolve the issue of oversupply.
Tomas Gutierrez, head of data at consultancy Kallanish Commodities, told Reuters:
"The next several months will be quite bumpy. Only a big structural shift would be enough to rebalance the market. The only viable long-term option is to reduce steelmaking capacity quite significantly; either the government forces that, or the market will."
The central government paused its steel capacity replacement program on August 23 in a bid to limit capacity expansion in the sector.
Total iron ore imports for the first eight months of the year were up 5.2%, reaching 815 million tonnes, with another 100 million tonnes imported in August alone. That’s why portside stocks of iron ore remain above 150 million tonnes, according to Mysteel's weekly survey of the country’s 45 largest ports.
Stocks fell by 254,000 tonnes in the week ending last Thursday to 153.8 million tonnes, still at more than a 20-month high. It was the second consecutive weekly decline but only equivalent to one or two bulk carriers from Australia or Brazil.
