Production pruning - Reduction of output spreads to large steel mills in China Tuesday, 13 Jul 2010
In the first week of July, Chinese steel prices declined like a roller coaster ride, which in return has caused a new round of production cut. Not only more steel mills are involved, but also more large steel mills begin the reduction plan.
More Chinese steel mills are cutting production
Under the influence of all bad news, last week steel price continued the downward trend to the bottom. At the same time, production capacity of steel mills also declined.
Comparatively, more mills begin maintain and reduction arrangements in July 22nd steel processing enterprises are in maintenance reduction, with a decline of production capacity of more than 1.4 million tonne, five enterprises suspend production for equipment overhaul, four enterprises are having blast furnace overhaul, which is expected to cause a production decline of about 63,000 tonne of crude steel. Besides, maintenance reduction has spread from small mills to large steel enterprises such as WISCO, Shagang Group and Pangang Group.
The oversupply and reduction of output in Chinese steel market are mainly caused by two factors. First, the excessive expansion of capacity has far exceeded the demand growth of downstream industries. Second, the price rise of iron ore has increased costs, and the increase has gone beyond the digestion ability of downstream industries. Other factors include the governments policy energy conservation and emission reduction in the third quarter and the demand decline of steel products caused by the hot summer weather.
Iron ore spot prices move on the ordained path with no holds bar Tuesday, 13 Jul 2010
The iron ore spot prices continued downhill through the thick of July and thin of June after the removal of export rebate. The movements are absolutely in tandem with the market movements in China. The steel mills have taken a rearguard action to curtail production and costs to survive the ordeal.
The catastrophe of 11% on the trot in the last 3 weeks has accelerated with each passing day as the consumption slumps and the stocks bloat. The ore imports market continues to move down with little enquiries and wait and see sentiment is flooding the market.
The Iron ore spot prices fell by USD 7 per tonne over the week for iron ore grade of 63.5/63%. The same pattern was replicated for both 62% and 58% content iron ore which fell sharply from a week earlier bulking by a quantum of USD 5 per tonne and USD 3 per tonne respectively.
Average weekly freight rates from Australia and Brazil also dropped continuously from the previous week. Daily freight rates from Australia to China fell sharply during the week, ending 11.5% lower. Freights from Brazil to China also fell, even more heavily, during last week and ended down more than 20%.
The gloom was writ large with the import figures of Iron ore for June showing a decline by 4.73 million tonnes MoM amounting to only 47.17 million tonne and 15% YoY. With the impending gradual shift form benchmark pricing based long term contracts to spot cargos, it has become more vital for both sellers as well as buyers to precisely monitor the daily movements of iron ore spot prices to keep tab on trends and spot opportunities.
