Stricter environmental regulations, reductions in steel production and an easing of mortgage rules in China are all having a positive effect on Chinese steel prices.

That said, analysts believe the rebound will be short-lived as end-user demand simply isn't there.

At the end of September, the Chinese Central Bank released 'broader than expected' relaxations of China's mortgage rules, expanding the pool of eligible home buyers, according to a report by China Metals. Stimulating the housing market is good news for the construction steel industry. In fact, it has been reported that steel prices in Eastern China, including Shanghai and Nanjing, rose by between 30-150 yuan/tonne. In the north, however, they dipped by 20-80 yuan/tonne.

Steel prices in September declined and many Chinese steel mills have found themselves losing money. A survey by MySteel showed that just over 50% of 163 steel mills under scrutiny turned a profit compared to just over 80% in August.

Dwindling profits led to many steel mills overhauling their equipment and reducing production and this led to daily average outputs of screw steel, wire rod, hot-rolled coil, cold-rolled coil and medium plate falling by 41kt.

Steel output is expected to decline further in November as steelmakers in Hebei, China's largest steelmaking province, suspend production to improve air quality during a series of planned APEC (Asia-Pacfic Economic Co-operation) meetings in Beijing.

China's steel production is unlikely to dip below the country's current nationwide overcapacity levels, but equipment overhauls and the planned suspension of production surrounding the aforementioned APEC meetings will 'curb production growth temporarily'.

Despite the production cuts surrounding the November APEC meetings, data from steel information provider shows that steel mills in Hebei province still have a capacity utilisation rate of 96%. Furthermore, China's major steelmakers are reporting combined crude steel output of 1.8Mt for the period 1-10 October, up 0.8% on the last 10 days of September. By 10 October the inventories of major steelmakers reached 15.6Mt, up 5.2% from 30 September.

Source: China Metals