Must know: China’s crude steel production edging upwards

By

Updated

Relevance of china crude steel production

China’s crude steel production is something that dry bulk shipping investors should watch. Iron ore’s primary use, of course, is the manufacturing of steel. And China is the largest producer and consumer of both iron ore and steel. As a result, the country’s steel production output is a key indicator of shipping rates.

China crude steel

To date, China’s steel mills are sticking to steady levels of production. In the upcoming months, this should benefit dry bulk shipping companies such as Safe Bulkers Inc. (SB), Knightsbridge Tankers Ltd. (VLCCF), Navios Maritime Holdings Inc. (NM), DryShips Inc. (DRYS), as well as the exchange-traded fund (or ETF), Guggenheim Shipping (SEA).

August crude steel output marginal increase

Article continues below advertisement

According to the National Bureau of Statistics, China’s crude steel output for the month of August edged up by 1% over July levels to 68.91 million metric tons. The level is in line with analyst expectations considering production conditions haven’t changed over the past two months. Also, steel demand remained dull, and low raw material prices strengthened supply.

Meanwhile, daily average production in the month of August stood at 2.22 million tons— similar to July levels. These levels are lower than the record daily average production level of 2.31 million tons in June, but they exceed the 2013 record monthly level of 2.19 million tons.

Despite a slowdown in the economy, mills are reluctant to reduce output for fear credit could be cut off and market share captured by rival producers. For the first eight months of 2014, output increased 2.6% year-over-year to 550.1 million tons.

Early September statistics

The China Iron and Steel Association (CISA) announced that in the first ten days of September 2014, average aggregate daily crude steel output by large and medium-sized steel producers totaled 1.795 million metric tons.  This represents an increase of 7.1% compared to the last ten days of August.

Looking ahead

CISA warned producers not to expect any loosening of credit restrictions in the fourth quarter. The association also recommended that producers refrain from increasing production even as the traditionally peak consumption season approaches.

Meanwhile, 2014 estimates for crude steel output stand at 830 million metric tons, or 2.2 million metric tons per day. These are almost similar to 2013 levels, according to data from CISA.

Let’s now move on to look at rising iron ore exports from Port Hedland.

Advertisement

More From Market Realist