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China's Steel Output is Rising Despite Forced Production Cuts

2019-10-03

You often hear conflicting stories about Chinese steel production.

Outright production capacity has been reduced as older facilities were closed under orders from Beijing in 2016-18, while much illegal or non-approved low-quality steel mills, whose output never appeared on reported results, have been forcibly closed.

Domestic demand is also said to be down with new-automobile unit sales were down on a year-over-year basis for 14 consecutive months through August, a report in the Nikkei Asian Review states.

The drawn-out trade war with the U.S. has also sapped China’s consumer appetite, the article advises, illustrated by underperforming sales of appliances.

With the China National Day holiday looming mills in Hebei and Shandong have ordered by the provincial governments to reduce their steel output by up to 50% in the run-up to the holidays in a bid to improve air quality.

Five mills in Shandong were ordered to suspend varying shares of steel production capacity, last week and this week, coming with a loss of around 29,000 mt/d of steel output. Hebei is still awaiting its closure orders, but some mills have already cut output of pig iron.

Yet despite this gloomy production and demand scenario, the Nikkei Asian Review reports short-term closures aside, China is poised to produce over 1 billion tons of steel this year, with the industry producing 577 million tons of crude steel in the first seven months of the year.

Fears are therefore rising that China could be on track to create a glut this winter despite the now normal winter closures.

China’s rivals in southeast Asia are looking on warily concerned that rising exports will further depress regional prices as the domestic market fails to absorb the anticipated record output.

That’s not good news for the rest of the world.

Even markets protected by high tariffs like the U.S. will be dragged down by lower global prices and imports undercut domestic U.S. mills.

That’s good news for consumers as demand and growth in the U.S. cools next year; lower prices will allow consumers to cope with softer sales prices for their own products.

Source: Metal Miner