THE typical summer lull across China’s steel sector never arrived this year as mills have churned out record volumes in a rush to fill a supply gap caused by government-mandated closures and to cash in on high margins.

China typically sees a slowdown in steel output because construction demand slows as building activity drop during the high temperatures in summer. The country’s output may rise higher as construction activity picks up in the autumn.

China’s steel production rose 10.3 percent from a year ago in July to a record 74.02 million tons, eclipsing the previous record set in June of 73.23 million.

New capacity that complies with strict, new environmental standards are filling the supply lost as illegal steel producers, mainly induction furnaces, are being shut. Mills are also running at higher capacity to reap margins that are more than 1,000 yuan (US$149.90) a ton.

Some steel analysts believe the record output is a result of the production from the environmentally compliant mills showing up in government data whereas the illegal induction furnaces did not.

“Following the closure [of illegal plants], official steel mills have had to ramp up production to fill the supply void, distorting the official production statistics,” said analysts at Liberum.

That suggests output in China, which accounts for about half of global capacity, may have been higher than many analysts previously thought.

Some estimates put the shutdown of induction furnaces this year at 30 million to 50 million tons, about 4 percent to 7 percent of China’s annual output.

“Driven by high margins and better-than-expected demand from infrastructure and the property market, mills have been working to fill the gap from the crackdown on low-tech steel production, which has meant the low season isn’t that low,” said Liu Xinwei, steel analyst at Sublime Information.

(SD-Agencies)