Posted on 02 Jun 2022
East China's Shandong province has begun taking steps to ensure that the province's crude steel output this year falls below last year's volume in compliance with Beijing's general policy of keeping the country's crude steel production under control, Mysteel Global has learned on Wednesday.
"We have received a plan notice from the local government relating to adjusting and controlling local steelmakers' crude steel production," an official with a Shandong-based steel mill confirmed.
According to him, the notice clarified that this year's total crude steel output from Shandong province should be lower than 76.5 million tonnes, the volume the province's steelmakers produced in 2021. But he noted that the notice gave no concrete details relating to the reduction and said the volume might be adjusted later when the central government issues its official guidelines relating to the output control policy. In 2020, Shandong produced 79.9 million tonnes, Mysteel Global notes.
An official with another Shandong-based mill also mentioned the notice, and said that by the end of December, he expected there to be some reduction in production.
"For the time being, given that domestic steel demand is still stagnant and finished steel margins are quite thin, the propensity for steelmakers to ramp up their production is heavily dampened, so in the near future, most local mills will very likely just stabilize their production at their present level. Should they do that, then for the whole year, some marked on-year reduction is foreseeable," he elaborated.
Over January-April, Shandong produced around 23 million tonnes of crude steel, lower by a substantial 6.4 million tonnes or 21.9% from the first four months of last year, according to data released by China's National Bureau of Statistics.
And it's not just the production teams at provincial steelmakers taking heed of the need to curb output, Mysteel Global notes. An iron ore procurement official with a third Shandong-based steel producer acknowledged that his company's management had asked him to slightly trim iron ore procurement, and to cap or even pare down the mill's overall iron ore stocks.
"I'm not sure of the exact reasons behind this strategy, but the current situation does seem to be testing steelmakers – namely, our relatively high raw materials costs compared to the weak steel prices," he commented.
He also predicted that if finished steel margins remain thin or even turn negative and stay that way for a long time, some steelmakers will finally take their predicament seriously and voluntarily scale back production to improve their profits as much as they can. "Currently, we are teetering on the brink of making losses," he admitted.
In fact, over the past few weeks, some steelmakers in Southwest China's Yunnan have started to curb their production, aiming to balance local steel supply and demand and stabilize steel prices, as reported.
Nevertheless, on Wednesday, though news of the provincial government's push on output cuts had been circulating since Tuesday, the market seemed generally unfazed, with prices of major ferrous derivatives still trending upwards as previously.
On Wednesday, the most-traded rebar contract on the Shanghai Futures Exchange for October delivery, for example, closed higher at Yuan 4,712/tonne ($705.9/t), up for the fifth trading day and by another Yuan 56/t or 1.2% from the settlement price of Tuesday.
On the Dalian Commodity Exchange, the most-traded iron ore contract for September delivery also closed the daytime session higher at Yuan 905.5/dmt, or up Yuan 10/dmt or 1.1% from Tuesday's settlement price.
Source:Mysteel Global
