2 Real estate regulation will affect the sales of steel industry

In February this year, signs of a recovery in the real estate market, China's steel production once again hit a record high, which seems to negate the efforts of the Chinese authorities to regulate and control the excess production capacity of the steel industry as a loss-making industry.

China National Bureau of Statistics said on Tuesday that China's crude steel production rose by 9.8% last month to an average of 2.21 million tons per day. This broke the record of 2.05 million tons/day in January this year, and the figure in December last year was 1.86 million tons/day.

There are signs that the steel consumer industry has shown signs of recovery, such as real estate and automobiles. According to data released by the Bureau of Statistics on Sunday, fixed-asset investment increased by 21.2% year-on-year in January-February this year. The China Association of Automobile Manufacturers said that the Chinese auto market's new year sales increased by 15%.

Henry Li, commodity researcher at Future Asset Management, said: “Generally speaking, after the Lunar New Year holiday, new infrastructure projects will be launched in many places.” Because of the expected demand for the construction industry in the future, the production of cement and copper has also accelerated.

At the same time, as the world’s largest steel producer and consumer, China’s steel exports have also steadily increased in 2009. In February of this year, the export of Chinese steel products increased by 25% year-on-year to 4.24 million tons. Although the chain fell 14%, the number of steel exports in February this year was already higher than 4 million tons for the 12th consecutive month.

The record of steel production in February this year is very worthy of attention because there is a Chinese New Year holiday in February. The increase in production indicates that steel mills hope to use the opportunity of higher steel prices to sell more products, although steel prices are still very low.

According to WSJ reports, analysts said that although steel prices have risen in February this year, many steel mills have still suffered losses. Although the price of iron ore invented a 15-month high in February of this year, some steel mills still sell steel at a loss of 300 yuan per ton.

China's steel production capacity is 35% higher than demand. The China Iron and Steel Institute recently pointed out in its report that China’s steel production reached 970 million tons last year, with output of only 717 million tons and consumption of about 700 million tons.

Chinese authorities have tried to cut capacity and integrate industries. China's largest steel-producing province, Hebei Province, accounts for more than one-quarter of the country’s steel production capacity and plans to reduce production by 60 million tons this year. This has proved to be a daunting task. Wang Yifang, the Hebei Iron and Steel Company’s second-largest steel producer in the country, said there is no plan to reduce production. He said: "Reducing 60 million tons of production is only a government plan. We don't have such a plan. We will produce according to market demand."