Posted on 12 May 2021
China’s National Development and Reform Commission (NDRC) and Ministry of Information and Technology (MIIT) are inaugurating a nationwide probe to verify the progress made in terms of steel capacity elimination since 2016, a re-examination which market insiders suggest could be a precursor to the central government unveiling new measures aimed at limiting crude steel output this year.
Monday’s joint announcement by NDRC and MIIT stated that this particular reassessment will include whether the steel capacity regarded by the government as excessive and producing substandard material and that should have been removed previously has actually been shuttered and scrapped as required. It will also check whether the construction of new capacity is in line with Beijing’s requirements, and whether the irregularities or violations that were found during previous rounds of checks have been rectified.
In particular, the investigations will be scrutinizing the preparations that local governments have made to ensure that their crude steel output this year is capped, including the formulation of plans, the progress to date and projected outcomes, according to Monday’s announcement.
Over May 10-15, State-owned Asset Supervision and Administration Commission and local governments should conduct their own investigations and report to the central government by May 30. Then from June 1 to the end of July, central government organizations led by NDRC and MIIT will be dispatching their own inspection groups for on-site checks, the announcement stated.
Since the central government-backed campaign to eliminate surplus and outmoded steel capacity was launched in 2016, China has removed over 200 million tonnes/year of iron and steel capacity and an extra 140 million t/y of ‘substandard’ steel capacity as of 2020, as reported. The campaign’s progress has been tracked and its accomplishments verified every year since 2016 to make sure the achievements are safeguarded, Mysteel Global understands.
This year’s re-visit is of special importance, given the central government’s vow that crude steel output this year must not surpass last year’s 1.065 billion tonnes. Market sources warned that meeting this goal will be especially challenging this year, given that the alluringly high profits available to mills currently raise the possibility of the commissioning or resumption of ‘illegal’ capacity (such as induction furnaces). This year’s status check could also be the curtain-raiser on a package of measures to effectively cut steel output, they indicated.
“The re-examination is forecast to have a significant impact on steel supply. Steelmakers producing with illegal capacity, including those whose production capacity data are false or forged, will be caught out and forced to suspend and scale down operations,” a steel analyst based in East China’s Shandong province stated.
“Capacity is the very base (for the output cut),” he commented. “It could be the start of a package of measures, and the next move might be lowering capacity utilization,” he suggested.
Market conjecture about what the impact of this year’s probe could be on steel supply has also helped fuel the recent drastic surges in finished steel prices, for both longs and flats, Mysteel Global noted.
“The ferrous market is so sensitive now, and the prices will move either way – and quickly – on any relevant news,” a Singapore-based analyst noted on Monday. “The NDRC’s review of the cuts made to outdated and excess capacity has been categorized as good news, as this indicates Beijing is serious about paring back capacity and output, hence ferrous commodities prices all shot up today.”
The most-traded rebar contract on the Shanghai Futures Exchange (SHFE) for October delivery hit its daily price fluctuation limit of 6% on Monday. SHFE data show the contract ended the daytime trading session at Yuan 6,012/tonne ($934.5/t), surging Yuan 340/t from the settlement price of last Friday and exceeding the Yuan 6,000/t level for the first time since March 2009 when the Exchange launched the prices.
In parallel, the most-traded September iron ore contract on the Dalian Commodity Exchange rocketed to Yuan 1,326/t on the same day, that contract’s daily price limit, which was up 10% or Yuan 120/dmt from the settlement price of last Friday, as Mysteel Global reported.
Source:Mysteel Global
