Despite declining prices, Chinese steel mills have increased production, prompting concerns that industry prices will crash. Though Nomura analysts forecast a 5% decline in output, Chinese steel production increased 1.1% in early August. Citigroup already forecasted that the industry would see losses in every quarter this year. Others warn that mills are encouraged to overproduce and don’t respond to price signals.
The statistics was extreme enough to prompt questions about whether the China Iron & Steel Association, which compiles the numbers, made an error. Nomura suggested the group may not have factored in smaller mills that have already decreased production. Yet it is also possible Chinese steel mills are refusing to adapt to softening demand.
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