Price collapse may force Chinese steel mills to cut output

Price collapse may force Chinese steel mills to cut output
It is reported that China steel mills are forced to make a tough decision cut output or cut price to support a steel recovery since domestic steel industry has walked to a crossroad with historical high steel output and stocks in one hand and the stabilizing signs of the fragile steel market in the other hand.1. Record steel output, stocks versus sharp price fallsAccording to latest statistics from China Iron & Steel Association, crude steel output of its member units in early September amounted to 12.78 million tonnes or roughly 16.66 million tonnes of China total and 1.67 million tonnes per day off merely 22,000 tonnes from the average number in August.China Securities Journal, citing a market insider said "The tiny output decline would do nothing to help trade for a gold September and October steel season.”China steel output hit an all time high of 52.32 million tonnes in August and market stocks also surged to this year record 10.95 million tonnes. However, steel price falls in the month were also striking, according to CISA, price for HRC, wire rod and rebar shed 8.19%, 7.19% and 4.56% respectively in August 11th to 31st. And the price declines have extended into early September and started to show signs of stabilizing until mid of the month. However it’s still a myth whether the expected rebound would come.2. Mills forced to cut output to arrest price downtrendThe high stockpiles must be worked down, bringing a tough choice for steel mills and traders: whether to cut prices to boost demand, or cut output to arrest price downtrend? In fact, output cutback seems the only choice.Prices for major steel products have approached costs line after slumps. And Baosteel, Wuhan Steel and Angang also revised down base prices for October by CNY 300 per tonne to CNY 500 per tonne. Steel market seems also has its own logic once steel mills’ ex works prices go in line with market price high stocks would be digested, and output will be under control then price decline would halt and move up.Orders at leading steel mills are lackluster in September. Orders at Taigang might drop by 0.16 million tonnes and Shougang by 0.14 million tonnes while Wuhan Steel and Angang are also hard to realize monthly production tasks. Therefore, real output cutback might occur in mid and late September.
However, there will be a contest among steel mills since everyone hopes others to take the lead. But the final result is fixed since agents also cut back their order sizes on bleak prospect.

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