Dry CargoGreater China

China posts record drop in steel output

Another record drop in Chinese steel output has spooked many in dry bulk.

China’s National Bureau of Statistics has issued figures showing steel production falling to a four-year-low in September, lows not seen since December 2017, and helping explain why volatile cape freight rates have fallen from $80,000 to $60,000 in the space of a fortnight.

China’s steel mills produced about 73.8m tons last month, down by 11.4% from August and 21.2% from the year before as real estate concerns grew and Beijing clamped down on polluting heavy industries while grappling with power shortages rolling across the world’s most populous nation.

“As the ongoing energy crisis forces most of the industrial sector in the country to operate at a reduced capacity, average steel capacity utilisation in the country fell to 83.5% in September, down from 85.3% in August,” brokers Braemar ACM stated in a note to clients, adding: “A slowing Chinese economy, particularly in primary industries, has hurt sentiment in the country’s steel industry, exacerbated by the tumults of the Evergrande Real Estate Group.”

When looking at the statistics, analysts at Lorentzen & Stemoco noted today that the reductions seen in late summer and autumn have been so steep that this year’s annual increase is about to dwindle drastically. Whereas the first half of the year started with annual gains of 10.8%, the increases for the first nine months of the year are down to a mere 2.8%

“There is a parallel between China’s reduced refinery throughput and steel production in recent months,” Lorentzen & Stemoco argued today in a note to clients. The authorities have steered towards a deflation policy, attempting to hold down prices for imported commodities such as oil and iron ore by keeping a lid on oil processing and steelmaking plants. Higher fossil fuel prices have also worked towards more costly electricity bills and power blackouts.

Braemar ACM

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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