China Steel production/demand/prices weaker

Steel production, demand and prices all weakened in July. The Olympic effect was undoubtedly a factor, but construction growth is also slowing for now. In July, China produced 44.9mt of crude steel, up by 7.5% YoY, and 42mt of pig iron, up by only 5% YoY. Crude steel production in January-July was 308mt, up by 9.3% YoY, posting single-digit growth for the first time in many years.

Local spot iron ore prices, facing high inventories and a slowdown of demand from steel mills, have turned down over the past week. The 63.5% Indian ore Tianjin port domestic delivery price was reported at $168/t ex-Vat, down by 3.7% from last week and 11% from last month. In addition, Hebei 66% iron ore fine retreated to $184/t ex-Vat, down by 6.3% WoW and 9.7% MoM.

The government increased coal and coke export taxes, raising the export tax on coke from 25% to 40%, on coking coal from 5% up to 10%, and it introduced a temporary 10% export tax on thermal coal.

During January-July 2008, Chinese refined lead demand rose by 21% YoY to 1.7mt, 300,000t higher than in the same period of 2007. This reflected rising exports of downstream lead products and strong demand from the domestic market, especially increasing demand from the lead acid battery sector and solid and sustainable production growth from the auto and auto motor industry.

Chinese trade data for major industrial metals for July 2008 were released last week. The key highlights include: Chinese copper imports remained subdued in July, but recovered moderately from the low in June. Through July, Chinese net imports of refined copper were down by 25% YoY to 704,000t. China moved back to being a net importer of primary aluminium in July. In January-July, China was a net importer of refined aluminium at 31,310t, compared with net exports of almost 44,000t from January to July 2007. In July 2008, China became a net importer of refined lead for the first time due to an underperformance of the LME price compared with the domestic Chinese price. China remained a net importer of refined zinc in July. According to China customs, Chinese net imports of refined zinc reached 53,000t in January-July 2008, compared with 128,000t of net exports during the corresponding period of 2007.

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