In mid-March a number of leading steel producers in China – company Baosteel, Wuhan Steel, Shougang and some others – announced the increase of prices in the domestic market according to the April contracts in the hope to stop the decline and create conditions for the resumption of growth. However, this attempt was not crowned with success: quoted market prices for steel products in China continue to slowly decrease. Hot-rolled coils, in particular, have fallen to level of December of last year. Because of this, most of the major steel companies suffer losses.
The main reason for the downgrade, all the experts unanimously called the excess supply. According to the national metallurgical Association CISA, in early March steel output in the country reached a record value – more than 2.08 million tons per day, and in the second decade only decreased by 1% compared with the previous ten days. Given that these CISA, uniting only to large and medium-sized producers, are always somewhat understated, it is possible to assume that in March China has supplied, on average, more than 2.3 million tons of steel a day. According to Chinese media reports, in Hebei province, the main metallurgical centres of the country, the level of capacity utilization in February and the first half of March exceeded 90%.
The persistence of Chinese companies who do not want to reduce the volume of production despite the decline, is understandable. All manufacturers obviously hope for a speedy expansion of demand. So, car sales in China in the first two months of the current year exceeded 20% in the same period a year ago. In early March it was reported about the increase in the production of air conditioners and other household appliances. Finally, the Chinese government is going this year to spend more than $100 billion on expanding rail network. All this, of course, will promote the growth of consumption of steel products in the coming months.
Experts and international organizations are quite optimistic about the prospects of China. In particular, the OECD forecast economic growth this year reached 8.5 percent. Analysts of the British Bank Standard Chartered predict China's economic recovery in the second quarter, which will be accompanied by an increase in domestic prices for steel products. Actually depressed is currently the only housing sector. However, it is consumed about one third of steel in the country, so its negative impact on the market negates many of the benefits.
Anyway, but the offer of steel products in the country still exceeds demand. According to CISA, the inventory of rentals is constantly increasing since the end of last year. To the greatest extent they increased for February by almost 20%. In March, the accumulation of reserves slowed, but the distributors do not yet feel the need for new procurement. At this rate, the reserves will be reduced to an acceptable level until the summer.
The government, having failed in their previous attempts to restrict steel production in the country, begins to treat this matter philosophically. As stated, for example, the Minister of industry Miao Wei, a small excess capacity, even useful, as it stimulates competition and improves conditions for consumers. According to him, the government will not intervene in the domestic steel market, while the degree of capacity utilization in industry decreases to 70-75%.
It's possible that Chinese companies will be able to stop the decline in domestic quotations for hire. Real consumption does add, in addition, in the second half of March stopped the fall in iron ore prices. But to count on substantial growth of the Chinese metallurgists in the foreseeable future.
 
Victor Tarnavsky
Rusmet.ru