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China Steel Output Declines as Economic Transition Cuts Demand

China’s steel mills, which supply half of global output, churned out less steel in the first two months of the year, extending a decline amid government efforts to reduce reliance on manufacturing for growth.

Crude-steel production for the January-to-February period dropped 5.7 percent from a year earlier to 121.07 million metric tons, data published by the country’s statistics bureau Saturday showed. Steel products output fell 2.1 percent to 162.28 million tons.

Steel mills in China are battling losses and overcapacity as the nation transitions its economy to one fueled by consumption and services, from growth driven by manufacturing, and have seen their output fall off record highs in 2014. Steel output tends to drop before and during the weeklong Lunar New Year holiday, which began Feb. 8 this year, before climbing after the break when manufacturing activity picks up.

January and February is a lull period for the steel industry, Huang Huiwen, an analyst at Shanghai Cifco Futures Co. in Shanghai, said before the figures were published. “We expect a recovery in March data as sentiment toward China’s economy and demand has improved.”

Annual steel output shrank 2.3 percent to 804 million tons in 2015, the first contraction since 1981. Steel consumption in China, which fell 5.4 percent last year, will drop a further 3 percent in 2016, according to estimates from the China Iron & Steel Association.

A recovery in steel output and consumption after the Lunar New Year holiday boosted demand for iron ore, powering prices higher, the China Iron & Steel Association said in a statement this month. Ore with 62 percent content delivered to Qingdao — the benchmark for the physical market — surged an unprecedented 19 percent in a single day on March 7 and ended the week at $57.09 a dry ton, according to Metal Bulletin Ltd

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