Crude steel production run-up affects dry bulk shippers

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China’s crude steel production

China’s crude steel production is a key indicator that dry bulk shipping investors should watch. This is mainly due to iron ore primarily being used to manufacture steel, and China is the largest producer and consumer of the two commodities.

China crude steel

Dry bulk shipping companies such as Safe Bulkers Inc. (SB), Knightsbridge Tankers Ltd. (VLCCF), Navios Maritime Holdings Inc. (NM), DryShips Inc. (DRYS), and the Guggenheim Shipping ETF (SEA) are benefitting from the uptick in China’s crude steel output.

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Crude steel output

China’s crude steel output for September stood at 67.54 million metric tons, remaining unchanged from the previous September. Month-over-month, September’s output fell 2%. In the first nine months of 2014, output rose 2.3% from a year earlier to 618 million tons.

Going forward

China’s total crude steel output should reach approximately 820 million tons in 2014, short of its overall capacity estimated at 1.1 billion tonnes. However, this is still outstripping demand, which has been hit hard by a sluggish economy. While there are no signs that conditions will improve in the final quarter of the year, steel firms have continued to pursue a strategy based on outlasting rivals. Mills prefer market share maintenance, hoping the strong will survive and the weak will fall away.

China’s average daily output of crude steel is expected to fall in October, mainly due to weak demand and environment protection inspections, according to the Shanghai Metals Market’s ferrous branch, Steelease.

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