The Platts China Steel Sentiment Index (CSSI) dropped to 25.61 out of a possible 100 points this month, down 12.47 points on October and the lowest level since the index began in May 2013.

The index is based on a survey of 50-75 Chinese market participants and reflects the expectations of market participants for the month ahead, with a reading below 50 indicating an expected contraction.

Platts said the most striking reading in the index was the collapse of expectations for new expect orders, which dropped 38.3 points to 32.62 for November.

“Speculation that China is considering removing tax rebates on exports of certain construction steel products has massively dampened sentiment – particularly as the domestic property construction market remains extremely weak,” Platts managing editor for steel and raw materials Paul Bartholomew said.

Readings for crude steel production and steel prices were flat.

“The outlook for steel in China is normally weak at this time of year coming into their winter but is more pronounced this year with concerns around the export market,” Bartholomew said.

“It could mean that smaller steel mills will adopt even more of a hand-to-mouth approach to buying raw materials and may undermine any seasonal restocking of iron ore.”

It comes after ANZ Research yesterday suggested Chinese steel capacity may have peaked at 1.1 billion tonnes.

“A more modest outlook on housing demand and the low-level industry utilisation rate (around 75%) suggests there is little reason for China to expand steel producing capacity,” ANZ said.

“In fact, new environmental standards being imposed on the steel industry from the start of 2015 are apparently so high that no new steel mills being considered will be able to meet the targets.”

However, ANZ is expecting annual steel production to rise from around 800 million tonnes towards 1Bt over the next decade.

“This will raise industry utilisation rates closer to a more sustainable and profitable 90%.”