- Major steelmakers made modest production cuts despite weaker domestic demand
- HRC inventories rise to highest level since mid-February
China’s crude steel production fell 2.7% y-o-y to 84.36 million tonnes (mnt) in May, according to industrial statistics released by the National Bureau of Statistics (NBS) on 16 June. Average daily crude steel output stood at 2.721 million tonnes, down by around 60,000 tonnes from the previous month. However, concerns over excess production continue to persist amid weak domestic demand in China.
Production cuts remain limited
According to the China Iron and Steel Association (CISA), which covers major steel producers, average daily crude steel output stood at 2.071 million tonnes in May. Although this was down by 14,000 tonnes from April, the decline was relatively modest compared with the broader reduction in national crude steel output. The steel export permit system introduced earlier this year has had a limited impact so far, with major steelmakers not significantly reducing production levels.
Emerging signs of demand weakness
Meanwhile, CISA’s steel distribution inventory statistics, covering five major steel products across 20 key cities, indicate that signs of weak domestic demand are beginning to emerge. Although total inventories peaked in early March following the Lunar New Year holiday and have continued to decline since then, hot-rolled coil (HRC) inventories began rising in late May. By early June, HRC inventories had reached the 2.2 mnt range, the highest level since mid-February.
China’s automotive sector also showed signs of slowing momentum. Subsidies for electric vehicle (EV) purchases were reduced this year, while automobile production in May fell 3.2% y-o-y to 2.582 million units. Compared with production levels recorded in December last year, the trend has remained below year-ago levels. Competition within the sector also intensified.
Production of new energy vehicles (NEVs), including electric vehicles (EVs) and plug-in hybrid vehicles (PHVs), increased by 17.8% y-o-y to 1.489 million units, while production of passenger vehicles, including sedans, declined by 23.5% y-o-y to 796,000 units. These developments may also have contributed to rising inventories across broader steel distribution channels.
Beyond crude steel, pig iron production in May declined by 2.6% y-o-y to 72.97 mnt, while steel products output fell by 2.8% y-o-y to 123.03 mnt. During January-May, cumulative pig iron production stood at 354.71 mnt, down 3.1% y-o-y. Crude steel output totalled 415.53 mnt, down 3.9%, while steel products production reached 592.99 mnt, down 1.5% over the same period.
With output reductions remaining modest and inventories beginning to rise in certain product segments, market participants are likely to monitor whether production discipline improves in the coming months as domestic demand softens.
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