China, which accounts for half the world’s capacity, produced 80.2 million tonnes of crude steel last month. China’s steel mills produced record amounts of the steel in the month of June as the producers tried to cash in on hefty margins.
Why is this important
- June output was below May’s record of 81.13 million tonnes, but since June has one less day, China set a new daily average production record at 2.67 million tonnes.
- According to the World Steel Association, this record output was just shy of the 81.6 million tonnes that the United States produced in the whole of 2017.
- Last month, China’s steel exports rose to 6.94 million tonnes, highest since July 2017, even after the US imposed import duties.
- The new mills have ramped up operations after old mills were shut down due to environmental concerns. According to Reuters, monthly utilisation rates at mills reached 71.6% in June, the highest since October before the winter production curbs had taken effect.
- As Beijing clamped down inefficient mills and focussed on its environment, the Steel prices soared over the past year due to higher demand and tight supply.
- Now, as the winter approaches again, the producers are racing to make as much metal as possible before a new round of production curbs are imposed.
If the Chinese demand doesn’t meet its surging supply, China may start dumping steel and it could lead to a decline in steel prices in the international market. This can affect the domestic players like:
SAIL (CMP: Rs. 73, Market Cap: Rs. 30,314 Crores, FY2020 EV/EBITDA: 7.4)
Tata Steel (CMP: Rs. 531.9, Market Cap: Rs. 59,895 Crores, FY2020 EV/EBITDA: 5.9)
JSW Steel (CMP: Rs. 307.7, Market Cap: Rs. 74,377 Crores, FY2020 EV/EBITDA: 6.3)