The Goldman Sachs Group Inc. stated that China’s steelmakers are breaking production records by pushing furnaces beyond their typical limits, offsetting nationwide closures that may be even more swinging than government estimates.
Goldman’s Hong Kong-based analyst, Trina Chen believed that the demand for robust and margins are high, and that mills have rewritten their steel-making recipes to push output beyond normal capacity.
“For the same blast furnace, mills can deliver an extra 10 percent or more steel than before,” she said.
Bloomberg reported that operators are using iron-rich ores to boost productivity and raise the portion of steel scrap in their feed-stock to as much as 30% from about 10% historically.
“The trend is continuing this year but they are approaching their stretchable limit,” Chen said.
In June, China’s average daily output was taking first-half volumes to a best-ever 451 million metric tons, more than half world production.
According to the China Iron & Steel Association, and Goldman, the industry profits have risen to 151%.
Goldman included that China’s capacity has shrunk by about 200 million tons to around 800 million tons, taking into account state-ordered closures and the long-term idling of facilities after the global steel market collapse of late 2015.
The researcher’s chief executive officer, Leland Miller said; “The Chinese just claimed they cut hundreds of millions of tons of capacity, and what we’re saying is they actually added it.”
Miller added that the industry’s improvement has come, not through supply-side reforms, but from stronger consumption and a wave of speculative demand from investors pouring into steel futures, which this week hit a five-year high.