China’s winter steel policy indicates continued strong output

China’s steel output cut policy for this coming winter period will be similar to the one implemented last year, with more autonomy given to provincial governments and higher performing mills exempt from the production restrictions.

This could mean a continuation of strong steel production and more pressure on steel prices.
China orders parts of its industrial sector to curb activity in a bid to lower pollution during the winter months.

Mills that meet ultra-low emissions standards across the entire steelmaking process – from raw materials to finished steel – will be exempted from the 2019-2020 winter output cuts, a spokesman from the Ministry of Ecology and Environment (MEE) said on July 26.

The MEE will not set an overall steel output cut percentage for steel mills, and local governments are authorized to set differentiated percentages based on steel mills’ emission control performance.

In anticipation of looser winter steel output cuts and higher demand for iron ore, the most active iron ore contract on the Dalian Commodity Exchange increased by 2.4% on the day on July 26.

In Hebei province’s Tangshan city, out of 35 steel mills, only Shougang Qian’an Iron & Steel – which has 11 million mt/year crude steel capacity – has met the standards since 2018.

In reality, few mills have achieved the ultra-low emissions standards so far as it requires significant investment to upgrade facilities.

China largely loosened the implementation of steel output cuts from August 2018 as the country’s economy started to flag due to the deleveraging program.

Though winter cuts were ordered to cover output from October 2018 to March 2019, most local mills in Tangshan did not start the cuts until December 2018.

Production subsequently recovered in January 2019 and has continued to increase since then.

Further, newly commissioned blast furnaces will begin to contribute to pig iron output over the second half of 2019, meaning there will likely be a net increase in overall output.

China’s pig iron production over January-June increased by 7.9% on year, according to the National Bureau of Statistics.

S&P Global Platts estimates China’s pig iron yearly growth rate will slow down in the second half of 2019, but will still reach around 7% for the whole of 2019.
Source: Platts