Jul. 3 - China's steel inventory has started increasing after 17 weeks of decline, without any sign of a market rebound after a dramatic decline in profits, analyst said.
China's steel companies suffered a total loss of 11.75 billion yuan ($1.9 billion) in the first five months of the year, about 27 times more than the same period last year, according to China Steel and Iron Association. Last year, the companies had a total loss of 414 million yuan during the first five months.
Large and medium-scale steel companies in the country realized a profit of 2.53 billion yuan during the first five months, down 94.26 percent year-on-year.
Meanwhile, the nation's total steel inventory reached 15.63 million metric tons on Friday, 69,600 tons more than the week before, according to market monitoring by Lange Steel Information Research Center.
"From the demand perspective, it is possible that steel stockpiles will continue to rise. That's a bad thing," said Han Weidong, a senior analyst at the research center.
Before last week, the steel inventory had fallen for 17 consecutive weeks, which should be good news for the industry. But analysts are not very optimistic because overall stockpiles are 1.11 million tons more than in the same period last year.
"The weak market situation will not change in the short term," said Chen Kexin, another analyst at the center.
He said that if the government doesn't adjust macroeconomic policies, China will face the possibility of a hard landing.
Although some incentive measures have been introduced by the central government in recent months to boost the economy, including accelerating the approval process of some infrastructure construction projects, these won't benefit the steel industry due to the projects' long investment cycle, analysts said.
Meanwhile, downstream demand from the real estate, shipbuilding, automobile and machinery manufacturing industries remains weak.
"Many industries are facing losses and some of them are in an even worse situation than in 2008," said Wang Guoqing, deputy director of the research center.
"The steel industry has been expanding rapidly for years. It is not hard to understand that the current slowdown in the economic growth rate will cause a number of problems. The weak steel market is a clear demonstration of this."
At present, there are no major reductions in output at domestic steel mills, which adds to the contradiction between supply and demand in the market.
In June, average crude steel production was 1.97 million tons, down 1.4 percent compared with the previous month.
"The steel market may get better at the end of the third quarter if the global and domestic economies improve," Wang said.
She said rising raw material costs and falling steel prices are the main reasons for the losses in the industry.