Steel market watchers in and out of China have been closely watching the moves in China, the world’s top steelmaking country, regarding more restrictive measures on its steel production for the remainder of 2021 so as to realize lower steel output for the whole year. And a number of Chinese companies have even been named recently on their curbing efforts or plans to do so, though only a few have been proven true.
A few mills start restrictions, more are waiting for orders
It is widely acknowledged that the cut will be steep, if it is to happen, as January-May, the country’s steel output grew 13.9% or 57.7 million tonnes on year to 473.1 million tonnes, according to the official data, and Mysteel Global’s inquiries on ten steel producers in China as of July 9, with the many rumoured to adopt trimming measures, and four including China Baowu Steel Group confirmed either having cut output or finalizing the plans on the government order.
Wuhan Iron & Steel Co, a subsidiary of Baowu in Central China’s Hebei province, has overhauled a blast furnace for 150 days since June 29, and Magang Holding Co, Baowu’s subsidiary in Anhui, also in Central China, announced to bank a blast furnace for 100 days starting sometime in September, according to related officials.
A Baowu official disclosed that the related authorities had not specified the cuts in the exact volume, and the company had been drafting its own plan.
Rizhao Steel Holding Group (Rizhao Steel) in East China’s Shandong province also confirmed receiving orders from the local authority and two steel producers in Southeast China’s Fujian province disclosed to start trimming their output in July and August respectively on the instruction of the provincial government.
The six others, though, rebutted the rumour that they have scaled down production or have received any requests from the local authorities.
“So far we are still operating as per normal, and some maintenance on our facilities are routine and short,” an official from a major steel producer in East China’s Jiangsu province said.
An official from a Northeast China-based steel mill confirmed that the company will overhaul a series of facilities including a blast furnace, but that is for routine maintenance not an order to rein in output, and an official from a state-owned mill based in North China’s Shanxi province was not aware of any words from the authority either by last Friday, though he added that “We will definitely act accordingly should the local authority instruct us to do so.”
China raw material markets wavering albeit just rumours
Despite no widespread steel production cuts in China, the steelmaking raw material markets have already felt the shake, according to the market sources.
Rizhao Steel, for example, on its lower steel production, has notified its coke suppliers of a Yuan 30/tonne ($4.6/t) cut in procuring the dry-quenching coke starting July 7.
Some other steel plants also in Shandong have notified their coke suppliers of coke procurement price cuts by as much as Yuan 120/t, citing the weakening in consumption, though for now, coke price cuts have only emerged in Shandong.
As for iron ore, the market sentiment has been dampened. “Bearishness has been prevailing, especially in the futures market in recent two days, and the market is with the growing concern that if steel production restriction is to be stringent, demand for iron ore will surely be dampened,” a Zhejiang-based iron ore trader said, and “steel mills have been cautious about iron ore procurement, as spot prices will fluctuate wildly should any news be confirmed,” he added.
“As for us (iron ore traders), though, we’d rather hold onto our offering prices for a while longer, as production cuts have been vague in details, and surely not the time to slash the iron ore price though it is high,” he said.
China’s iron ore & coke price
Source: Mysteel
Where will steel price go with output cuts?
Uncertainties in steel output cuts in China, nevertheless, has fuelled the market speculation on higher steel prices should the domestic steel demand remain as robust for the rest of the year, market sources shared last Friday.
“In H1, many domestic steel prices surged to record highs despite that over 50 million tonnes were added to the output, so if a large volume is cut from the supply in H2, can you image how far the prices will go north?” a Beijing-based steel analyst threw the question.
“Now for Beijing, it could be a choice between lower steel output for 2021 or steel price stability, and to me the latter appears more important,” he said, projecting that in the end, China’s crude steel output for 2021 may not be lower than 2020, though China’s steel output may decline on year at least for some months for the rest of the year.
Market sources in India and the U.S. shared the similar line of thinking.
“Unless China can cool its steel demand together with output, and this could be achieved in the aspects of construction, automaking, shipbuilding and machinery manufacturing, or lower output may lead to higher steel prices, working against Beijing’s wish to stabilize bulk commodity prices,” a U.S-based steel analyst shared.
China’s crude steel output (monthly) VS rebar price (daily)
Source: Mysteel, NBS
Written by Mysteel Global Shanghai Editorials
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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