In the beginning of the second decade of June in China celebrated the dragon boat Festival, during which operations in the domestic steel market was suspended. However, the pause duration in the three days nothing has changed. Rental prices in the country continue their slow decline. The average cost of rebar in the domestic market fell to its lowest level in four years (in yuan), and hot rolled coil is only slightly exceed the previous low set in early September last year.
The reason for this decline has long been known. This excess supply of steel products with insufficient demand. The growth rate of the Chinese economy is slowing. The crisis in Western countries has led to a diminished need for Chinese goods: in may, exports fell to the lowest level in the last ten months. The government only in March of this year engaged in performance of their duties, is in no hurry to take radical measures to stimulate domestic consumption. Finally, in the South of the country began the rainy season, resulting in lower activity in the construction industry.
In principle, the real demand for steel products in the country is not so bad, but the market's just too much rolling. Distributors in the ever-falling prices are trying to reduce stocks of steel products, which accumulates in the steel plants. At the end of may, according to the national metallurgical Association CISA, in the industry, there were about 13 million tons of unsold products. Steel companies are trying to get rid of it, selling at competitive prices, which only worsens the situation on the market.
It's clear that to solve the problem of excess supply is possible only by reducing production. However, the results are quite modest. According to the beginning of June, the whole industry was stopped for repairs and prevention of slightly more than 10 blast furnaces and about the same rolling mills. This is equivalent to reducing the supply of 1.24 million tons of steel products (of which 600 thousand tons of hot-rolled coils) for the next few days. Meanwhile, according to analysts ' estimates, for the stabilization of supply and demand it is necessary to reduce steel production in the country less than up to 2 million tonnes per day compared to approximately 2.18 million tonnes per day in mid-may. According to CISA, in late may this index dropped to 1.96 million tonnes per day, but it's hard to say whether manufacturers hold at that level at least until August.
So far, the Chinese metallurgists cheaper to produce rolled products at a loss than to stop the blast furnace and rolling mills. Closing capacity is the inevitable loss of market share, which will be very difficult to restore again in the future. In addition, most Chinese steel companies have high debts and need a constant stream of cash for timely payments. Finally, against the closure by local authorities, who from time to time to help in one way or another metallurgists to prevent the loss of jobs in their territory.
Says Xiu quandi, President of the Chinese society of metals, industry would take at least 5-10 years to solve the problem of overproduction. Total capacity has already exceeded 1 billion tons per year, while this year is expected to be commissioned more than 500 new features. Chinese steelmakers continue the implementation of investment projects with a total value of about $44 billion.
Therefore, experts increasingly refer to the situation on the national market of steel with fatalistic resignation. According to them, sooner or later the market will put everything in its place. According to preliminary data CISA, up to 80% of large and medium steel companies of the country in may, worked with losses. Rental prices continue to decline (although, in parallel, the cheaper iron ore, scrap and coking coal). Now, steelmakers expect the jump in demand in August and September, but if it doesn't happen, it will be for many manufacturers the "last straw" and cause them all to slow down.
Of course, by that time, prices for steel products may fall to the level of 2009, but... no serious problems have no easy solutions.
 
Victor Tarnavsky
Rusmet.ru