Chinese mills produced 86.79 million tonnes (mn t) of crude steel in Jul’21, as per data released by the National Bureau of Statistics today.
The production volume fell for the second consecutive month with the recent 7.6% m-o-m decline against 93.88 mn t in Jun’21. Similarly, on an annualised basis output slipped 8.4% compared to 94.75 mn t in Jul’20.
What factors have driven this downtrend in crude steel output?
1. Production curbs: The Chinese government has been undertaking strict measures in reining in its crude steel production to the levels of 2020, in a bid to reduce industrial carbon emissions and improve the air quality.
For instance, early in July, authorities of Jiangsu and Anhui provinces had ordered steelmakers to keep their CY’21 crude steel output in line with levels achieved in 2020. Moreover, Tangshan, the major steelmaking hub of China, has been under phased production restrictions since Mar’20.
2. Removal of export rebate: Chinese authorities have also used export rebate adjustments as a tool to put a leash on production volumes. On this note, in May’21, the export rebate was removed from 146 steel products, including HRCs, one of the most heavily exported products. This was followed by the removal of the export rebate on 23 more items towards end-Jul’21, mainly CRCs, galvanised iron, silicon steel and a few other items.
This, in turn, resulted in a decline in finished steel exports in July. Export volumes fell to 5.68 million tonnes (mn t) in Jul’21, down 12% m-o-m compared to 6.46 mn t in Jun’21.
3. Impending export tax announcement: The market has remained abuzz regarding levy of an export tax in HRCs of around 10-15% or more since end-May’21. As a result, China’s monthly average HRC export offers moved up by $18/t to $962/t FoB China in Jul’21 compared with $944/t FoB a month ago.
Also, mills have incorporated a clause of ‘buyers to shoulder any losses arising out of the export tax levy’, which has kept the importers on the side-lines.
Outlook
The production volume is likely to go down in the upcoming month, majorly driven by the ongoing production curbs. Moreover, the Beijing government is mulling revising the restrictions in Hebei province ahead of the Winter Olympics and Paralympic Games to be held in Feb-Mar’22.
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