Some Chinese steel companies plan to cut output to reduce losses as the country’s steel price has tumbled by some RMB500/t (US$78.6) in the past two months, nearing the sharp decline at the end of 2008. Spot prices of hot-rolled coil steel in China were quoted at RMB 4380/t ($689) on Oct 24, down 7% from the proceeding week. This marks the sixth straight on-week decline for Chinese steel prices.

The steel prices are plunging as demand collapses. In Q3 2011, China’s GDP growth stood at 9.1%, which is lower than the market expectation of 9.2% and down 0.4% from Q2.

Amid the huge decline in steel prices, most of large users decided to delay steel purchase and market transactions are in the doldrums, therefore, panic selling arises which further drag down the steel price.

A report released by China Iron and Steel Association on Oct 20 indicates that steel inventory began to show a rise after six consecutive months of decline. In the second week of October, inventory level of 26 main steel markets reached 15.13Mt , 4.6% higher than the end of September.

Due to the diving prices, high inventory level and shrinking demand, analyst note China’s steel market has entered a new cycle of output cut which will last for two to three months.

Despite recent cuts, China’s steel output in September was 18.8% higher than a year earlier at 76.36Mt , according to the National Bureau of Statistics (NBS). Output in the January-September period amounted to 667.29Mt, up 13.9% y-o-y.

Daily steel output continued to grow, pointing to over-supply pressures. During the October 1-10 period daily output reached 1.9339Mt, up 0.2% from the proceeding ten days, according to the latest statistics from the China Iron & Steel Association (CISA).

Source: China Metals e-mail