Balli Steel, one of the world’s largest privately owned independent commodity traders, has highlighted that a surge in Chinese steel production since the beginning of 2010 has led to the recent dramatic decline in steel prices from their peak in early April.
Figures from the World Steel Association show that approximately 158 million tonnes of steel were produced in China during the first quarter of the year. In addition, steel production peaked at 55.4 million tonnes in April 2010, a 27% increase on April 2009, representing the highest amount of crude steel that China has ever produced in a single month.
This dramatic surge in production has led to a corresponding decline in steel prices over the past six weeks. In January 2010, Chinese steel prices were approximately $500 per tonne, rising to a peak of $700 per tonne in early April. However, overproduction has led to prices falling back to $550 per tonne by mid-May.
As China is by far the single largest steel producer in the world, accounting for approximately 47% of global production in 2009, this overproduction of steel and the corresponding decline in prices have had a significant effect on the global market.
Balli Steel emphasised that what happens next to the area’s steel prices will be dependant on how quickly China can cut its production and estimates that the country needs to reduce its output to approximately 40-45 million tonnes per month by July in order to maintain stable pricing.
Gianpiero Repole, Business Development Director of Balli Steel comments: “The Chinese steel market remains a strong prospect for the medium and long term with the country’s growing economic dominance in the region ensuring that there will be an ongoing demand for steel. What we are currently experiencing is short term timing difficulties with sharply rising prices at the beginning of the year leading to a surge in production, ultimately resulting in over production and falling prices.