Performance of steel sector in China is weaker than expectation in August

The performance of steel sector in China is weaker than expectation in August. Reuters reported that Chinese steel futures kept declining on 1^st September, with buyers concerned by persistent overcapacity problems. Economic data issued suggested that China's stimulus measures were no longer enough to offset declining investment in the property sector, which is suffering from overcapacity.

According to a private survey, China's factory sector growth fell to a three month low in August and China's official manufacturing purchasing manager's index also dipped over the month. The most traded rebar contract on the Shanghai Futures Exchange ended the morning at CNY 2,925 per tonne, down 0.4% to a new low. A manager with a Beijing based commodity trading house said that "I think people are mistaken if they think there is going to be a big recovery in September.

There is probably going to be more steel demand, and some restocking, but there is no solution to the overcapacity everywhere in housing, in iron ore, in steel products." Bank ANZ said in a note that despite the Friday increase the market remained pessimistic and steel mills were still only restocking sporadically. At the same time, steel production has remained close to an all time high, with many struggling mills worried that any decision to cut output would reduce their cashflow and put them at further risk of closure. The latest CISA figures showed that product inventories at steel mills reached 15.25 million tonnes in mid August, up 4.68% from the first 10 days of the month.

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