LAUNCESTON, Australia, Dec 17 (Reuters) - China's steel output fell in November from October, seemingly another sign of the struggles in the world's biggest producer of the key metal for construction and manufacturing.

But while November production did drop 4.3% from October, the detail is far more nuanced and the big picture shows China's steel sector is largely steady, as it has been for the past five years.

Crude steel output in the world's largest producer was 78.4 million metric tons in November, down from 81.88 million in October, data from the National Bureau of Statistics showed on Monday.

However, on a tons per day basis, November was 2.61 million tons, down only 1.1% from October's 2.64 million and higher than the 2.54 million from November 2023.

It's likely that output eased in October as steel mills saw margins squeezed by higher iron ore prices and softer prices for key steel products such as rebar.

Steel production also tends to moderate as the northern winter approaches, partly as demand eases with colder weather cutting construction, but also steel mills tend to undergo maintenance and face pollution control measures in some areas.

For the first 11 months of the year, China's steel output was 929.19 million tons, down 2.7% from the same period last year.

However, it's likely that December's production will come in higher than December 2023, which at 67.44 million tons was the weakest in six years.

This means that 2024 output is likely to be around 1 billion tons, roughly in line with the 1.02 billion tons produced in 2023.

However, given 2024 production is likely to be slightly down from 2023's figure, the media headlines will probably be downbeat when the final data is released early next year.

This isn't an accurate picture. In volume terms, China's steel output has been largely stable since 2019.

Production hit 996 million tons in 2019, before rising to a record 1.07 billion tons in 2020 and then easing to 1.03 billion in 2021 and 1.01 billion in 2022.

In other words, since 2019 the gap between the weakest year and the strongest for steel output was a mere 74 million tons, and in recent years the gap has been even smaller.

Essentially China's steel production has flatlined, and while this isn't a bullish story, it's far from the bearish narrative that is the current market consensus.

EXPORTS, INVENTORIES

What has shifted slightly is that China is exporting more steel products, with 101.15 million tons being shipped out in the first 11 months of 2024, a gain of 22.6% from the same period last year.

Assuming December steel product exports are largely in line with November, that means total exports for the year are likely to be around 110 million tons.

This would be about 22% higher than the 90.26 million tons exported in 2023, but in volume terms it is only about 20 million tons more, or about 2% of China's total steel production.

China's steel inventories are also not surging, implying the bulk of steel being produced is actually being consumed.

Rebar inventories monitored by consultants SteelHome dropped to 3.05 million tons in the week to Dec. 13, down from 3.10 million the previous week, and also below the 3.51 million from the same week in 2023.

Another sign that China's steel sector isn't performing badly is that iron ore imports and prices remain robust.

Imports of iron ore, the key steel raw material, were 1.124 billion tons in the first 11 months of 2024, up 4.3% from the same period in 2023.

Steel mills have raised iron ore purchases as the price trended weaker over 2024, with the Singapore Exchange contract having dropped from a peak of $143.60 a ton on Jan. 4 to a low of $91.10 on Sept. 10, before recovering to end at $105.66 on Monday.

The overall picture from China's steel sector is that modest iron ore prices are supporting imports, and steel production is holding up despite concerns over a weak residential property sector.

The views expressed here are those of the author, a columnist for Reuters.

Sign up here.

https://www.reuters.com/markets/commodities/chinas-steel-sector-is-not-gloomy-it-appears-russell-2024-12-17/