Steel mills expect gains from output suspension

Workers at a steel factory in Dalian, Liaoning province. China's daily average output of crude steel has seen further contraction in July. [Photo/China Daily]

Beijing will adopt a specific air quality control plan to temporarily close factories for the military parade celebrating the 70th anniversary of victory in World War II, which will have a positive effect on steel prices, mysteel.com said.

Some steel mills based in the places such as Handan and Tangshan in Hebei province and Taiyuan in Shanxi province have already received notice asking them to reduce or suspend production during the celebration to be held on September 3, according to steel information provider mysteel.com.

About 30 percent of steel capacity will be reduced from the end of August to early September, while from the end of September to the National Day holiday (from October 1 to 7), all the steel mills located within 100 kilometers of Beijing will be completely shut down, it said.

China's daily average output of crude steel has seen a further contraction in July as dwindling profits led to domestic steel mills overhauling factories and reducing the steel output, resulting in a moderate rise in prices.

But experts said that the rebound will only be short term as real demand simply is not there due to a weak economic outlook.

Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said that overcapacity in the steel industry can hardly be improved by measures like temporary closure.

"The plan will curb production growth temporarily, but it will hardly have any effect on the steel market, because demand is still weak and overall economic outlook is not promising," he said, adding that the market will remain weak for the second half of this year.

Xu Yongbo, an analyst with First Futures, said steel prices saw a slight rebound in the futures market this month but sluggish demand and resilient overcapacity are holding down prices.

China's steel association said in a statement that 43 percent of its steel mill members suffered losses in the first half of this year due to an "insufficient demand" and plummeting prices due to overcapacity in the sector.

Du Juan contributed to this story.