Chinese steel prices are holding steady, with China’s steel rebar prices holding above $2,620 per ton, as market participants hold on to the hope that the country will increase its capacity cuts as the year progresses in order to meet its 2016 output cut goals.
Data released earlier in the month showed that China’s steel capacity cuts have only recently gained momentum, in July, but prior to July’s large cut the country was falling behind when it comes to meeting its full-year capacity curtailment aspirations. Since the data’s release, the country has promised that it will continue to produce its steel companies to trim output with the pressure heating up as the year goes on.
China’s top economic planning agency said on Tuesday that the country should quicken reduction of capacity in its steel sector. China has cut 47% of the 45 million tons in capacity that it promised this year. China has excess steel capacity of around 300 million tons.
China has promised to work to trim steel overcapacity, not only to help stabilize the global steel market but to help out its steel producers. While it may be hard to believe that China would be willing to cut capacity just to meet international pressures, restructuring its domestic steel market will also help local steel producers benefit from greater profits.
While steel prices are rebounding this year, the commodity has had a few tough seasons. 2016 is better for the steel market with China’s increased infrastructure spending boosting the market, but overcapacity remains a major problem. Once the country decreases infrastructure spending prices could be due for a big correction, unless there is also a change to the supply chain, and that is what China is hoping to do.
Source:economiccalendar