Posted on 26 Jan 2015
Chinese steelmakers are bringing forward plant maintenance as they look to curb oversupply that helped knock nearly a third off prices last year in the world's top producer of the alloy, industry sources said.
Leaner demand in winter, when construction activity typically slows, has also forced steel mills to keep low iron ore inventories, piling more pressure on prices for the steelmaking ingredient that have plunged close to their weakest in 5-1/2 years.
Chinese steel producers, including the biggest private mill Jiangsu Shagang Group, state-owned Wuhan Iron & Steel Group and Hebei province-based Tangshan Iron & Steel, are scheduling maintenance on some facilities, according to industry consultancy Custeel.
Those companies did not immediately respond to requests for comment from Reuters.
"The difference this year is that in order to trim production, many mills in northern China have brought forward maintenance plans, which traditionally happen during the Lunar New Year, as prices have fallen too quickly and many rebar producers have been losing more than 100 yuan ($16) a tonne," said Cheng Xubao, an analyst with Custeel who has spoken to several mills.
The Lunar New Year holiday, also known as the Spring Festival, this year kicks off on Feb. 19.
Slowing economic growth in China has hit demand growth for a raft of commodities, with benchmark rebar futures on the Shanghai Futures Exchange shedding 4 percent so far in January after tumbling 29 percent last year. Spot iron ore prices .IO62-CNI=SI slumped 47 percent in 2014.
"We are making a loss of more than 200 yuan a tonne and have had to conduct maintenance on one blast furnace which may last until after the Spring Festival," an official with a small steel mill in Tangshan told Reuters.
According to Custeel, 12 large mills will cut their total output by an estimated 896,000 tonnes during scheduled overhauls over January and February.
"The figure looks limited, but this is just a survey of a few mills, and many mills have also reduced production rates even without conducting maintenance," Cheng added.
China's total steel output in December jumped 7.6 percent from the month before to around 69 million tonnes, data showed this week.
Sluggish consumption has led to a big rise in steel product inventories.
Inventories the five main products, including rebar and hot-rolled coil, had surged 8.07 percent to 10.41 million tonnes by Jan. 16 from the end of 2014, the China Iron & Steel Association said in a report on Thursday.
China's steel production grew at its slowest rate in more than three decades in 2014, while consumption fell 3.4 percent.
The world's second-largest economy grew 7.4 percent in 2014, its weakest expansion in 24 years.
