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Little opportunity seen for China steel market gains in 4th qtr.

Keywords: Tags  China steel, steel production, iron making capacity, Cisa, China Iron and Steel Association, productions cuts, steel prices, rebar hot-rolled coil

SHANGHAI — China’s steel market is unlikely to gain much momentum in the fourth quarter, given rising supply and moderate demand.

The country produced 2.14 million tonnes of crude steel per day from Sept. 11-20, up 0.7 percent from the first 10 days of the month, according to the latest China Iron and Steel Association (Cisa) data. That amounts to 782 million tonnes on an annualized basis.

"Production could stay high in the next few months as no major mills have cut back plans so far. But the pace could slow down, given the recent downtrend in steel prices, as well as stricter environmental controls in major steelmaking regions such as Hebei province," a northern Chinese mill source said.

To ease air pollution around Beijing, the country’s largest steelmaking region, the central government has unveiled plans to slash ironmaking capacity by 14.47 million tonnes and crude steel capacity by 15.86 million tonnes by the end of 2015.

It set a further target of cutting 66.72 million tonnes of ironmaking capacity and 67.26 million tonnes of crude steel capacity by the end of 2017, according to a provincial conference held Sept. 27.

Only a small percentage of market players contacted by AMM sister publication Steel First expect a price rally when business resumes Oct. 8 after the weeklong National Day holiday. Others are betting on slight fluctuations or more price falls.

"The traditional golden September disappointed me this time. I’m not expecting too much from the silver October," a mill source in central China’s Henan province said.

September and October are usually the peak months for the country’s steel industry. Market participants had generally expected better performance when prices trended upward in July and August.

However, domestic rebar prices in Beijing have lost about 190 yuan ($31) per tonne since the end of August, down 5 percent.

In Shanghai, domestic hot-rolled coil prices also declined 3.5 percent over the same period, according to Steel First’s price archives.

"It’s really difficult to make any forecast at the moment, as there are too many uncertainties in the market," a Shanghai-based analyst said.

"I’m not optimistic about demand recovering in the fourth quarter. There are no incentives that drive demand in sight," a Tangshan-based mill source said.

While some are expecting stimulus from the third plenary session of the 18th Chinese Communist Party Central Committee scheduled for November, the source in Tangshan is less optimistic about any big policy changes, arguing that Beijing will likely focus on economic restructuring to ensure steady growth rather than rely purely on investment-driven gross domestic product growth.

"Hence, I think steel demand is not likely to see any significant increase under these circumstances," he said.

"I think steel prices will likely be rangebound for most of the fourth quarter. It would be better to keep a moderate inventory at hand and be cautious when making any decisions," a Shanghai-based trader said.

A version of this article was first published in AMM sister publication Steel First.

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