SHANGHAI, July 19 -- China's massive steel sector, which has begun cutting production in the face of falling prices and softening demand, is nearing the break-even point, the China Iron & Steel Association (CISA) said on Friday.
"Most steel products prices have extended falls in July, to a level almost below the mills' production costs, and this will continue supporting prices," CISA said in a statement on its website.
The production cuts, and the limited room for further falls in margins, may cause steel prices to rebound slightly in the near future, CISA said.
CISA also predicted China's exports of steel products would fall sharply in the second half of the year, adding to pressure on the sector.
"Moreover, there are still uncertainties for the economic recovery in the euro zone, and Chinese steel exports will fall sharply in the second half of this year, putting more pressure on the domestic market," it said.
CISA blamed rising international trade protectionism and the removal of export tax rebate for some steel products earlier this week for the tougher export environment.
While exports slow, the domestic market is also gloomy, with mills facing a squeeze from two directions: steel prices are under pressure from slower growth in China's car and building sectors, but input costs have not fallen as fast.
Average prices for imported iron ore rose by 8.82 percent from a month earlier to $139.85 per tonne cost & freight in June, while prices for domestic ore, coke and scrap were still relatively high, CISA said.
At the same time, steel production is still growing fast on an a year-on-year basis and high inventories will weigh on the sluggish market, the association warned.
Inventories for five major steel products in 26 major cities stood at a combined 15.72 million tonnes by the end of June, down by 0.4 percent or 60,000 tonnes month on month.
"Steel inventories have remained high, further dampening steel prices," it added, "while the supply glut on the domestic market hasn't been effectively eased, as is evident from continued high daily average steel production."
China's daily crude steel output averaged 1.79 million tonnes in June and fell for the second month in a row, but by a mere 1.0 percent from May, indicating that only small steel mills have begun making output cuts.
A few steel mills have already taken a slew of measures including cutting or halting production or scheduling maintenance in order to control production.
CISA also predicted steel demand would keep growing as the country will keep to its target of stable and rapid economic growth in the second half of this year.