Steel prices continue to ascend, but so are production costs as the price of inputs rise, prompting Chinese steel companies to increase their prices. This week, China’s largest steelmaker China Steel Corp. (CSC), said it would raise prices by 3.7% per ton on average for December deliveries due to increases in raw material costs.
Rebar futures in China have appreciated about 62% this year after five consecutive years of losses, but the cost of producing steel has also increased. CSC noted that the price of metallurgical steel is about 2.5 times higher than it was in July, contributing to a $80 per ton increase in steel production costs in a short period of time.
At the same time that China is seeing steel production costs increase, the country’s steel output is continuing at a high level despite promises to rein in production. China was supposed to trim its steel overcapacity this year, and although the country started down that path in the first part of the year, the country is now producing more steel than a year earlier as a property boom, stoked by stimulus plans, drives domestic demand.
Date released from China’s statistics bureau on Wednesday showed crude-steel output totaled 603.78 million metric tons in the first nine months of 2016, up 0.4% from a year ago. Last month, supply increased by 3.9% year-over-year.
While the country’s steel output is increasing, so is its economy. After showing signs of an economic slowdown, the Chinese government embarked on stimulus programs that included infrastructure spending and this has driven an increase in demand for steel. These programs are proving to be effective at stimulating the economy. Data released on Wednesday showed that China’s gross domestic product expanded 6.7% in the third quarter from a year earlier, coming in line with the government’s target of 6.5% to 7%.
While China’s domestic demand for steel remains high, the country still faces accusations of unfair trading, dumping its steel on international markets at ultra low prices due to the government’s subsidies on its steel sector. The US has already implemented some high tariffs on imported Chinese steel products. While Chinese demand for steel appears strong, globally the steel market’s outlook isn’t that promising. The global demand for steel products is forecast to grow 0.2% this year and 0.5% next year, according to the World Steel Association.