USA steel output unusually low. Chinese steel output unsustainably high

The collapse of hot-rolled band prices is becoming almost universal. Buyer apprehension and seller distress is now common in the United States, Europe, China and on the world export market. We also hear that orders have tailed off in India and Brazil.

The USA mills’ near-term steel sheet shipment potential – which we derive from weekly USA crude steel production data and estimated deliveries of semis to the United States – seems to be running 5-10% below our estimate of the industry ’s shipment requirement this year. Moreover, this disparity may widen in July as a number of the domestic steel plants have plans to shut down for a week.

Chinese steel production is likely to decline sharply in the months ahead. In fact, the Chinese industry may suffer its most substantial decline in output in recent memory. By or before September 2005, WSD thinks that Chinese output will fall to a 300-310 million tonne annualized rate, versus a 342 million tonne annualized rate in April 2005. Output will plummet because: a) Chinese exports of finished products and semis will probably be much lower due to reduced prices on the world steel export market and Chinese governmental actions that have dampened or eliminated steel export incentives in a number of cases; and b) Chinese apparent steel sheet demand has fallen significantly in the past month as steel buyers, rather than adding to inventory as was the case in March and April, are now seeking to reduce inventories because they fear that steel sheet prices will continue to collapse.

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