China's pig iron, steel output to mark modest rebound in early Aug: sources

China's daily pig iron and crude steel output could see some modest rebound in early August after falling in July as some steelmakers ramp up output due to recently improved profit margins, industry sources said Aug. 4.

However, most steelmakers were wary of the margin trend and demand prospects, and were not keen on raising output, sources said.

China's daily pig iron output is likely to increase 25,000-30,000 mt/d in early August, as operations at blast furnaces with several steelmakers have resumed, according to calculations by S&P Global Commodity Insights based on data from market sources.

Most of them are located in northern China's Shanxi province, and a few are in eastern and southern China.

The daily crude steel output in early August could see a bigger increase, as China's electric arc furnace steelmakers, using mainly scrap, have also been ramping up steel production from late July.

But for the most portion of July, steel production continued on a downtrend from June.

Over July 21-31, China's daily pig iron and crude steel output dropped to 2.311 million mt and 2.670 million mt, down 6.2% and 5.9%, respectively, from July 11-20, according to data released by the China Iron & Steel Association Aug. 4.

The CISA estimated daily pig iron and crude steel output in July at 2.379 million mt/d and 2.725 million mt/d, down 7.2% and 9.9%, respectively, from June.

Daily crude steel in July was also 2.7% lower on the year, but pig iron output was 1.2% higher on the year, the data showed.

Based on the CISA's estimates for July, daily pig iron output in early August could rebound to around 2.34 million mt, although still 1.6% lower than in July but about 1.4% higher on the year, according to S&P Global calculations.

"The pig iron and crude steel output rebound in August should be modest, as steel demand has remained sluggish, and most steelmakers tend to believe the recent upticks in steel prices and profit margins are just an upward correction after the sharp fall in July," a market participant said.

A few market sources said the recent uptick was mainly a result of decreased inventories due to output cuts in July that slightly improved the sentiment.

The support also comes from a bullish development around the infrastructure sector, which is likely to generate better steel demand in coming months, they added.

The Chinese domestic rebar sales profit margin rose to $33.60/mt on Aug. 3, up from minus $61.90/mt on July 15, according to data from the S&P Global.

"Despite improved margins lately, most Chinese mills have still been restrained in raising their output, suggesting they expect the recovery in steel demand to be slow and modest in the coming months," another market participant said.

Any improvement in the infrastructure sector, however, would not be enough to fully offset the drag seen in property new home starts, the source added.

As of July 31, finished steel inventories at mills and spot markets monitored by the CISA reached 27.33 million mt, down 7.3% from end June, but still about 5% higher on the year.