China Faces Summer Steel Output Cut on Prices: Chart of the Day

China’s steelmakers, the biggest in the world, may cut output in the next two months as prices have dropped at a time when the main raw material became costlier.

The CHART OF THE DAY shows the benchmark price of hot- rolled steel coil has dropped 1.2 percent in China since May 23, while iron ore has increased 5.8 percent. The profit squeeze means daily steel output may fall as low as 1.8 million metric tons by the end of August, about 12 percent less than the record high in April, according to estimates by Custeel.com, a Beijing- based industry researcher.

“Steelmakers are struggling to break even at current price levels, and summer is usually a slow season for demand and production,” Hu Yanping, chief analyst with Custeel, said in a phone interview from Zhangjiagang. “Smaller mills are more flexible in adjusting production than larger rivals.”

China’s economic growth in the current quarter will be 7.8 percent from a year earlier, the slowest expansion in more than three years, according to the median forecast of 15 economists in a Bloomberg survey. The nation cut interest rates and approved $23 billion of new steel projects in May to spur output and spending, prompting a rebound in iron ore prices from a six- month low.

The spot price of 62 percent ore delivered to China’s Tianjin port traded at $137.40 a ton on June 22, rebounding from a six-month low of $129.90 on May 23, according to data provider the Steel Index Ltd. Baoshan Iron & Steel Co., China’s largest publicly traded steelmaker, Wuhan Iron & Steel Co. and Angang Steel Co. cut prices this month as demand slowed.

Steel output this year in China, which produces almost half of the world’s total, will be 700 million tons, the China Iron and Steel Association said June 16. That would be a 2.5 percent increase from 2011, the smallest annual rise since 2008, according to data compiled by Bloomberg News using figures from the steel association. Custeel expects total output of 730 million tons.