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China’s daily crude steel production from 1 to 10 July fell 0.8 percent from the end of June to 2.872 million mt per day, but output was still 2.6 percent higher than a year earlier, according to data from the China Iron & Steel Association on 13 July.

The oversupply in the Chinese domestic market showed no signs of abating in July, increasing pressure on steel prices and showing that further production cuts will be needed to stabilise prices.

China’s daily pig iron production from 1-10 July was down 1.5% year-on-year from 21-30 June, but up 5.5% year-on-year to 2.478 million mt per day.

As of 10 July, finished steel stocks at CISA-monitored mills were 28.4% higher than a year earlier, at 18.05 million tonnes.

The shortage of supply weighed on hot rolled and rebar margins, which were minus $65/tonne and minus $31/tonne on 12 July.

According to some market sources, the drop in steel production remained contained, despite steel mills operating at a loss, because most steel producers remained reluctant to extend production cuts, fearing an impact on their market share and local GDP growth.

Sooner or later, Chinese steelmakers will have to expand steel production cuts, otherwise the oversupply may only worsen and further weigh on steel margins in the coming months.

If China’s daily crude steel production remains at the levels of early July (2.872 million tonnes) for the remainder of 2022, the country’s July-December crude steel output will be 12% higher than the same period in 2021.

For 2022, steel production will be about 1.7 per cent higher than the previous year. In the July-December 2021 period, China’s crude steel production fell sharply to an average of 2.565 million tonnes per day, partly due to government-imposed production reduction orders for decarbonisation and partly due to a drop in end-user demand.

Most market sources stated that they do not expect a large year-on-year growth in steel demand in the second half of 2022, as weakness in the housing sector continues to drag demand down.

Therefore, the current level of steel production is still too high to balance with demand.