China’s steel production outlook
China (FXI) (MCHI) produced 66.3 million tons of steel products in November 2016. That figure represents a YoY (year-over-year) rise of 4.7% in addition to October’s 3.6% rise. It was the ninth straight monthly YoY rise in steel production.
Steel production rose 1.2% in the first 11 months of 2016, contrary to what many market participants predicted at the start of the year. Most were forecasting that it would fall in 2016.
Analysts are now forecasting a fall in steel production in China for 2017. While most market participants believe that major steel consumer sectors such as real estate and shipbuilding will fall, automobiles and railways should see a YoY rise.
Hebei, China’s main province where steel production takes place, has increased its capacity-cutting targets for 2017. The province will now cut 19.9 million tons of steel capacity in 2017, which is higher than its original target of 15.6 million tons. It’s aiming to cut 60.0 million tons of iron and steel capacity by the end of 2017.
Chinese steel exports fell
We’ve also seen some moderation in Chinese steel exports for the past few months. China exported 8.1 million metric tons of steel in November, a fall of 16.0% YoY (year-over-year). China’s steel exports have registered a YoY fall for four consecutive months. Exports in the first 11 months of the year have also fallen 1.0% YoY.
After acting against direct Chinese steel imports, the United States Department of Commerce is now investigating transshipments of Chinese steel products from Vietnam. The European Union (VGK) slapped anti-dumping duties on some Chinese steel products. India extended the minimum import price for its steel products to fend off cheap Chinese steel from its borders.
In the face of rising inventories, capacity cuts, and lower exports, growth in production may not be as robust in the rest of 2016 as it has been. The factors mentioned above could result in lower iron ore imports from seaborne players such as Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale SA (VALE), and Cliffs Natural Resources (CLF).
In the next part of our series, we’ll take a look at steel prices in China.