SHANGHAI, June 23 -- Chinese stainless steel makers cut production in June, signaling their bearish outlook for the sector in the coming months on the back of sluggish demand and ongoing de-stocking.
At least 600,000 to 900,000 tons of stainless steel capacity has been idled, mainly at small and medium-sized mills, industry participants said. Although larger producers are also seeing a drop in orders, many of them are yet to cut production.
"Production cuts are inevitable" given continued weak sales in the physical market and the recent volatility in nickel prices on the London Metal Exchange," said an official at Zhangjiagang Pohang Stainless Steel (ZPSS), South Korean steal maker Posco's stainless steel plant in China.
Nickel is the main ingredient in stainless steel making. China's stainless steel prices usually track three-month LME nickel prices as China doesn't have domestically traded nickel futures contracts.
"We're not very optimistic about the second half (of the year), especially the third quarter, mainly because of weak consumption at downstream users," said a senior official at Shanghai Tsingshan Mineral Co, the country's largest privately-owned stainless steel producer.
"We may have to lower prices to get rid of the high stocks if sales continue to drop," the official said, adding however that the company hasn't planned any production cut yet.
Prices of stainless steel bar, one of the many stainless steel products, have dropped more than 17% to CNY18,000-CNY19,000/ton since mid-April when three-month LME nickel prices began falling amid the sovereign debt crisis in Europe. LME nickel shed 25% during this period.
"Bookings are certainly worse than that in the first quarter, and we expect orders to decline in July and August. Our production plan depends on the order book," said an official at the stainless steel business unit of Baoshan Iron and Steel Company.