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China’s Steel Output Defies US Pressure Yet Again in June

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Record daily average output

In the previous article, we learned that Chinese iron ore imports remained weaker in June on higher inventories and environmental inspections.

However, despite pollution curbs, the daily steel output for Chinese steel mills set a record in June for the third month in a row. According to Reuters’ calculations, the daily average steel output in June came in at 2.67 million tons, which was a new record.

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China’s steel production

China’s total production in June was 80.2 million tons, 9.5% higher YoY (year-over-year), though it was 1.1% lower than the record production achieved in May, as June had one less day. In the first six months of the year, China’s steel production jumped 6% to 451 million tons.

The daily average output record implied that steel mills left no stone unturned in trying to take advantage of higher steel prices despite environmental checks.

Investors should also note that China’s iron ore exports rose to 6.9 million tons in June, the highest level since July 2017. This buoyancy in exports was seen despite the trade tariffs imposed by the United States on China and many other countries.

The demand from downstream sectors is particularly strong, which is supporting higher steel production. China Steel sees its revenue rising 15% in 2018 to its highest level since 2011. This rise, it says, is underpinned by strong domestic demand.

Robust steel margins support production

If demand remains firm, iron ore prices (PICK) could climb even higher, which could expand the price differential between higher- and lower-grade material. Vale SA (VALE), BHP (BHP), and Rio Tinto (RIO) are major iron ore producers mining high-quality iron ore. Fortescue Metals Group (FSUGY), on the other hand, produces sub-62% material, attracting discounts.

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