Surprisingly, given the negative impact of the Covid lockdowns on Chinese car production during the same period, the country’s blast furnaces ran flat out to put steel production at well over 90 million tonnes in both April and May.
That helps explain the better-than-expected performance in industrial output of a rise of 0.7% in May after forecasts for a 0.7% contraction and the 2.9% slide in April.
The strong performance in April and May also helps explain why iron ore prices have remained above $US120 since late March, peaking at $US146 a tonne on June 9 (and trading around $US137 a tonne this week).
The story is in the data from the National Bureau of Statistics on Wednesday which showed May’s crude steel output totalled 96.61 million tonnes – the highest since the record 99.5 million tonnes in May a year ago. It was up from the 92.78 million tonnes in April.
The March – August period is usually the peak production period for steel and it is telling that for all the warnings about clamps on production from the Chinese government and others, the annual rate of production in the two months was over 1.1 billion tonnes and back to levels last seen in 2020.
Over January-May, China’s total crude steel output was down 8.7% on year to 435.02 million tonnes but the rate of fall was better than the 10% drop in the four months to April.
But cement production fell 17% in May after a 12% slump in the first three months of the year and a very weak month in April. That’s more evidence of the impact of the lockdowns as well as the property slide.
Production of raw coal and crude oil in China continued to climb in May, although the pace slowed a touch from April’s rise according to the National Bureau of Statistics
Raw coal output climbed 10.3% year over year in May to 336 million tonnes while imports fell 2.3% year over year, reversing the 8.4% jump in April. For the first five months of the year, coal production was up 10.4% to 1.18 billion tonnes
Crude oil production edged up 3.6%, a touch weaker than the 4% growth in April, while imports surged 11.8% year over year, accelerating from the 6.6% increase the previous month.
China’s natural gas production grew at a faster rate of 4.9% in May from the 4.7% expansion in April. Imports of natural gas last month, dropped 12.1% from a year earlier after contracting 20.3% in April.
Electricity production in China fell further in May, with power generation decreasing 3.3% to 641 billion kilowatt-hours from last year. That was the real indicator of the impact the Covid lockdowns continue to exert over the entire economy. That was still better than the 9% slide in April when the lockdowns were at the height.
But it was performance in the steel sector – no carbon clamps because it is summer, the sky remains bluish through the smoke and haze around Tangshan, the steelmaking hub of China, Covid doesn’t seem to be a worry and demand is slowly picking up.
The rising steel production worsened the oversupply situation as domestic steel demand remains dismal due to pandemic-led disruptions. Steel stocks held by mills are around 20% above the level of May-June, 2021.
The question now is if, with the improved outlook for Covid lockdowns across much of the country, manufacturing and construction activity picks up and starts using some of the excess stocks.
Some Chinese analysts say the June, and certainly the July, crude steel production data won’t be so upbeat as May.