China’s steel production recovered in early November, but weakening downstream demand continued to pressure mill margins and steel prices.

Some regional traders and mill sources expect China’s steel production to gradually decline for the remainder of the year; however, weak domestic downstream demand is likely to keep steel prices under pressure.

          The daily pig iron and crude steel output at China Iron and Steel Association’s member steel mills averaged 1.804 million metric tons and 1.926 million mt, respectively, over Nov. 1-10, up 3.5% and 6% from late October, but 4.1% and 8.1% lower year over year, the latest CISA data showed.

 The daily pig iron and crude steel output in early November were still 0.9% and 1.2% lower, respectively, than the daily averages in October.

 Increase in production coincided with rising inventories, signaling persistent demand weakness across key steel consuming sectors. According to CISA data, the finished steel inventories at steel mills and major spot markets monitored by CISA totaled 24.42 million mt as of Nov. 10, up 3.1% from the end of October, and 18.6% higher from a year ago.

 Construction steel indicators pointed to particularly weak demand, with rebar market inventories rising 41.3% year over year to 3.56 million mt as of Nov. 10. Hot-rolled coil inventories, reflecting manufacturing sector demand, rose about 18% year over year to 2.16 million mt.

 “The pig iron and steel production is likely to resume its downward trend from mid-November, due to squeezed steel profit margins and weakened demand,” said a mill source based in northern China.

 According to traders and mill sources based in northern and eastern China, the current Chinese domestic HRC sales margins have fallen to breakeven levels from Yuan 50-100/mt ($7-$14/mt) in late October. Rebar sales were currently at losses of around Yuan 50-100/mt