A series of “mini-stimulus” policies designed to rejuvenate China’s flagging economy will help support steel demand over the coming months, but prices will continue to be weighed down by a supply glut, the country’s steel association said on Thursday.
China’s economy grew at an annual rate of 7.5 percent in the second quarter, up slightly from 7.4 percent in the first three months of the year, responding to a modest stimulus package that included tax cuts for small firms, reserve requirement cuts for some banks and infrastructure spending.
New housing construction helped drive an improvement in steel demand in June, and inventory levels declined 5.65 percent declined from the end of May, but prices still remained near 11-year lows, the China Iron and Steel Association (CISA) said.
“Steel production remains at a high level, which isn’t conducive to easing the oversupply problems in the steel market, and it will be difficult for steel product prices to see any large-scale recovery,” it said in its monthly market report.
China’s steel sector has been plagued by overcapacity, and industry officials have expressed hope that weakening demand and higher environmental compliance costs will help winnow out smaller, inefficient producers.
The local government of the major producing region of Hebei near Beijing is also planning to shut as much as 60 million tonnes of ageing, polluting steel capacity by 2017.
Daily crude steel production still hit a record 2.31 million tonnes in June, data from the National Bureau of Statistics showed on Wednesday, with output over the first six months of the year reaching 411.9 million tonnes, up 3 percent.
CISA said that while fixed asset investment in the ferrous metals sector fell 8.4 percent to 215.7 billion yuan ($34.77 billion) in the first half of 2014, it remained at a relatively high level and new production capacity was still coming on line.
Industry estimates suggest China’s total steel capacity stands at more than 1 billion tonnes, compared to an annual production rate of 779 million tonnes in 2013.