In a belated move some major Chinese steel makers curbing output by starting plant maintenance, as weak steel prices squeeze margins. However reluctance continues to plague bid at rationalization owing to fear of the following factors:
Risk of losing market share to smaller millsWithdrawal of credit lines by banks in case of production costRecovering high fixed cost and economies of scale Pressure by local government to continue production to save employment China Iron & Steel Association data shows steel product inventory at mills at about 13.7 million tonnes and it the current round of production cuts is expected to reduce it by 1.24 million tonne only.
China's steel prices can rebound if average daily crude output drops to around 2 million tonne, down roughly 8 percent from current record levels. However given the reluctance it seems unlikely.
The consultancy estimates that production cuts at steel mills it surveyed will reduce crude steel output by 1.24 million tonnes over the whole maintenance period and hot-rolled coil by 600,000 tonnes.
Over capacity culminating in over production continues to plague the spot and futures market more so during recession. When positive factors are unveiled, market goes in overdrive ignoring the peril unsustainability but once the hype evaporates the debacle is more back breaking.
The rally rise between Nov 2012 and Feb 2013 is a case in point when urbanization was hyped creating expectation of robust demand. This led to surge in production by mills. However once the hype fizzled out market was left with preposterous stockpile having prolonged crippling effect.
It has led to cyclical impact on futures which dipped to the lowest since the beginning of this year to CNY 3478 per tonne on June 4 even lower than spot market.
Situation is unlikely to be different at least till July till the production cuts and pick in demand from the rural infrastructure sector takes root.
Risk of losing market share to smaller millsWithdrawal of credit lines by banks in case of production costRecovering high fixed cost and economies of scale Pressure by local government to continue production to save employment China Iron & Steel Association data shows steel product inventory at mills at about 13.7 million tonnes and it the current round of production cuts is expected to reduce it by 1.24 million tonne only.
China's steel prices can rebound if average daily crude output drops to around 2 million tonne, down roughly 8 percent from current record levels. However given the reluctance it seems unlikely.
The consultancy estimates that production cuts at steel mills it surveyed will reduce crude steel output by 1.24 million tonnes over the whole maintenance period and hot-rolled coil by 600,000 tonnes.
Over capacity culminating in over production continues to plague the spot and futures market more so during recession. When positive factors are unveiled, market goes in overdrive ignoring the peril unsustainability but once the hype evaporates the debacle is more back breaking.
The rally rise between Nov 2012 and Feb 2013 is a case in point when urbanization was hyped creating expectation of robust demand. This led to surge in production by mills. However once the hype fizzled out market was left with preposterous stockpile having prolonged crippling effect.
It has led to cyclical impact on futures which dipped to the lowest since the beginning of this year to CNY 3478 per tonne on June 4 even lower than spot market.
Situation is unlikely to be different at least till July till the production cuts and pick in demand from the rural infrastructure sector takes root.