August 14, 2019 / 2:35 AM / 8 days ago

China's July steel output eases on environmental curbs, shrinking margins

BEIJING (Reuters) - China’s monthly crude steel output fell for a second straight month in July, official data showed on Wednesday, as steel mills trimmed output amid heightened environmental measures and record raw material prices.

FILE PHOTO: Smoke and steam rise from a steel plant in Anyang, Henan province, China, February 18, 2019. Picture taken February 18, 2019. REUTERS/Thomas Peter

The world’s top steelmaker produced 85.22 million tonnes of crude steel last month, data from the National Bureau of Statistics (NBS) showed, down from 87.53 million tonnes in June but still well above 81.24 million tonnes a year earlier.

China’s steel production has been strong this year despite relatively thin margins, supported by firm demand from sectors such as property and infrastructure as Beijing looks to bolster its economy amid a trade row with Washington.

Average daily output of the industrial metal was 2.75 million tonnes in July, down about 6% from 2.92 million tonnes in June, according to Reuters calculations.

The decline came as local governments in northern China, including the top steelmaking province Hebei, stepped up production restrictions to improve air quality.

Hebei is set to impose tougher emission requirements on industrial firms after warning three cities for their failures in controlling air pollution over the first half of this year.

At the same time, the price of iron ore, a key steelmaking raw ingredient, surged to a peak of $126.5 a tonne in early July, data tracked by SteelHome showed, squeezing profit margins at steel mills.

Weekly utilization rates at steel mills across the country fell to around 66.44% in July from 70.41% a month earlier, data compiled by Mysteel consultancy showed. However, an easing of production restrictions at some cities, such as Handan, led utilization rates to rise to 69.48% in the week to Aug. 8.

Steel stocks held by Chinese traders have been increasing for nine straight weeks since early June, indicating weak demand over summer as construction activities slow down due to hot weather and frequents rains.

In the first seven months, China churned out 577.06 million tonnes of steel, up 9% from the same period last year, the NBS data showed.

While iron ore prices have come off sharply in recent weeks, rating agency Fitch Ratings expects steel production in China to decline in the second half due to a slowdown in housing construction, environmental measures and market-driven production cuts on shrinking steelmaker margins.

“We expect weaker domestic demand and increasing trade friction to lead to a decline in average selling prices as steel margins continue to be squeezed for the rest of the year,” it said in a report.

Reporting by Muyu Xu, Min Zhang and Shivani Singh; editing by Richard Pullin

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