Home / Commodities / Commodity News / China’s winter output cuts may give limited boost to steel markets

China’s winter output cuts may give limited boost to steel markets

China is expected to enforce winter steel output cuts in the country’s northern region as a way to reduce smog. However, these cuts to be implemented in the fourth quarter are unlikely to reduce China’s crude steel output on a large scale, raising oversupply concerns that could weigh on steel prices in coming months, sources said.

Although final details of the winter steel output cuts for 2022 remain unclear, some market sources expected them to be similar to those in 2021.

Steelmakers in northern China, including in the Hebei province where the country’s largest steelmaking hub Tangshan is situated, were required to keep their crude steel production 30% lower than a year ago in late 2021.

However, more steel mills, particularly in Tangshan city, are expected to be exempted from output cuts this winter because of improved environmental performance.

As of mid-September, about eight steelmakers in Tangshan have reached environmental protection grade A, with a total crude steel capacity of 66 million mt/year, S&P Global Commodity Insights calculations showed.

The number of such steelmakers was just two in 2021 with a total crude steel capacity of 24.7 million mt/year.

Steel mills that reach grade A will be in theory exempted from winter steel output cuts. In fact, crude steel output of the two A-rated steelmakers in 2021 rose 7% year on year, while others that did not reach the A grade all reduced their 2021 output from 2020 levels.

Moreover, the Hebei provincial government has recently announced a white list of enterprises with good environmental protection performance, including 13 local steelmakers.

Production at these enterprises will not be affected by environmental protection issues, such as smog reduction measures during winters.

The whitelist has therefore increased total crude steel capacity exempted from winter output cuts in Hebei to 93.4 million mt/year from 66 million mt/year.

One Tangshan-based mill source said it was reasonable for China’s winter steel output cut in 2022 to be less stringent than in 2021, as local mills have made massive investments to improve their environmental metrics.

Nevertheless, it remained to be seen whether local governments will order additional steel output cuts to keep 2022 annual output below 2021 levels for the purpose of decarbonization, the mill source added.

Tangshan’s crude steel output during January-July was 0.7% higher on the year at 74.69 million mt, according to the Tangshan city government.

A few market participants expected that China would keep its 2022 crude steel output in check within 2021 levels, but any government-backed output cuts this year could be modest given the pressure from slowed economic growth.

“I’m afraid the steel market will trend down again in October or so due to poor demand, if the steel output doesn’t decline from current levels,” a market source added
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping