China Oct Crude Steel Output Near Record High; Demand Up

BEIJING -- China's crude steel output was at a near-record level in October, but the market reading it as an affirmation of economic recovery rather a sign of over-production, analysts said Wednesday.

Crude steel production rose to the second-highest level on record of 51.75 million metric tons, up 42.4% on year, the National Bureau of Statistics said. China produced a record 52.33 million tons of crude steel in August.

"Steel prices have been on a rebound, so we can't expect big cuts in production, and it's obvious that demand is increasing," said Xie Zhaowei, steel analyst for Great Wall Futures.

With reinforced bar, a common type of construction steel, reaching utilization rates of 93%-95%, Xie said, the construction and export sectors have been absorbing increased supply in the second half of the year.

"With profit margins up, they can sustain this sort of utilization rate, and the economy is looking good," said Gao Yanrong, research manager at Dalu Futures. "The volume is rising from a low level this time last year. Investment is high, and there's quite a bit of downstream use."

Mills are easily fetching profit margins of CNY600/ton in recent weeks, Gao said.

Exports of steel products have been quietly on the rise, despite widespread media coverage of China turning a net importer in March, the first time ever. The country became a net exporter again in July, and exports of steel products have exceeded imports through September.

The high crude steel output volumes defy the government's intensifying efforts to contain over-production, which it says could be a drag on prices and derail the nascent recovery.

But producers aren't really paying heed to official admonitions.

"It's a bit exaggerated," Xie said. "It could just be related to the iron ore price talks. It's mainly the China Iron and Steel Association saying this about over-production and over-capacity, and their aim is the iron ore talks. But it's not like we're at end-2008 conditions."

The Association, which is leading iron ore price talks for 2010, last week said it expects full year crude steel output to be around 550 million tons. That projection, however, looks unrealistic because mills will need to contain monthly output below 40 million tons in November and December to avoid exceeding the 550-million-ton target.

According to official data, January-October production rose 10.5% on year to 472.47 million tons.

Meanwhile, China's copper output in October rose to a record 390,000 tons, up 1% from September and up 28% from October last year.

"It's likely that demand is growing, and the outlook for the industry is improving," Gao said. Output may have risen in the fall, ahead of the traditional lull periods in summer and winter, Gao said. The construction and electricity sectors are likely fueling the record pace of production of refined copper and primary aluminum, which also reached a record.