The bank’s latest Bulk Commodities Update for June issued yesterday said China’s apparent steel consumption had fallen in early 2015, down by almost 5% over the first four months of the year, which NAB put down to the weak demand from China’s construction sector.

“We expect the country’s steel demand to remain subdued across this year, while steel exports are unlikely to be as supportive as last year, due to lower incentives for producers to export,” the bank said.

The China Iron & Steel Association (CISA) expects steel consumption to fall by around 6% this year, following on from its estimate of a 3.4% fall in consumption last year.

NAB’s report revealed prices for hard coking coal remained largely unchanged in the 12 months to March 2015, trading in a range of around $US5/tonne over the period.

Yet since this time, spot prices have fallen – down from around $114 a tonne at the start of the year to $85 a tonne in mid-May for the Asia Clear Australian active contract – a level it stabilised at for the remainder of the month.

NAB said these prices were well below current contract levels – which were set at $109.50 a tonne for Q2 – indicating that the third quarter contract will be settled at a “considerably lower” level.

“Global metallurgical coal markets remain influenced by the weakness in China’s seaborne demand,” NAB said.

“In the first four months of the year, China’s imports of metallurgical coal totalled 14.7 million tonnes, a year-on-year decline of almost 25%. We don’t anticipate a major recovery in China’s imports – reflecting the ongoing weakness in the country’s steel sector.

“Recent price trends appear to indicate that the market has been oversupplied in early 2015 – following on from a balanced market for much of 2014, as production cuts in North America offset weaker Chinese demand.

“Further strength in Australian exports and lower Chinese import volumes have softened the market once again – and further supply cuts may be required.

The supply picture remains mixed. Australian exports are continuing to increase in early 2015, while Canadian exports have fallen by around 5% year-on-year in the first three months of the year.”

While US export data for the first quarter has not yet been released, total exports in 2014 fell by 4%.

World Steel data has revealed global steel production was 535 million tonnes in the first four months of 2015, a decline of 1.6% year-on-year.

Output in China fell more moderately, down by 1% to 269Mt, resulting in China accounting for over 50% of global output over this period.

Steel production outside of China fell by 2.1% year-on-year to 266Mt in the first four months, though NAB said production trends were “highly mixed” over this period – with output rising in India, Russia and Taiwan, but falling in Ukraine, the United States, Japan and South Korea.

“Weaker output likely reflects the deterioration in profitability in recent months – as steel prices have fallen more rapidly than raw materials,” NAB said.

“China’s domestic steel prices have dropped below RMB 2500/t, at a time that iron ore prices have edged higher. China’s steel prices have fallen despite domestic steel inventories declining – with levels well below the ranges of the past four years – indicating the weakness in demand.”

According to CISA data, around half of the country’s major steel mills were loss-making in March. Across the country, excess capacity is estimated at around 300Mt – around a quarter of the total.