China’s steel mills boosted their monthly output at the fastest pace in more than two years in November, data showed, as robust infrastructure demand spurred producers to expand production for a ninth straight month even as coking coal prices bite.
Output rose 5 percent to 66.29 million tonnes year-on-year, the fastest growth since June 2014, according to data from the National Bureau of Statistics on Tuesday.
Although soaring costs of key raw materials, like coking coal and iron ore, have eroded margins, steel mills were still making a profit of between 200-600 yuan ($28.98-86.95) per ton, said Wang Yilin, senior steel analyst at Sinosteel Futures.
“Steel mills want to increase production because of the big profit margins,” she said. “The steel market has also been driven by strong infrastructure demand, as Beijing has approved more projects this year.”
The spike last month showed mills in the world’s top producer were chasing rising prices, said Richard Lu, analyst at CRU consultancy in Beijing. Shanghai rebar futures have surged 95 percent this year.
Strong demand and rising prices of raw materials have enabled steel mills to increase their prices and pass on the cost to end-users, said Lu.
“Because of the strong market sentiment, physical traders are buying steel in hopes of making money with the price continuing to increase,” he added.
Compared with October, output dropped 3.24 percent to its lowest level since February ahead of a seasonally slowest period for steel sales from the infrastructure and construction sectors during the colder winter months.
Analysts expect output to decline in December as mills undertake annual scheduled maintenance.
Total output for the first 11 months of 2016 edged up 1.1 percent to 738.94 million tonnes.
In 2015, China’s output dropped for the first time since 1981 as weak metal prices and a government clampdown on excess capacity forced plants to shut or suspend operations.
This year, most of the capacity that has been closed for good was already shuttered.
“Some of them have been idle for years, so it won’t largely impact steel output,” said Lu.