Posted on 25 Jun 2024
China’s National Development and Reform Commission (NDRC) has instructed each province to submit its steel production reduction targets for the current year, BigMint reports.
The current reduction targets for several provinces are as follows: Fujian – 3.5 million tons (already announced), Hebei – 15-17 million tons, Shanxi – 2 million tons.
Other regions are constantly updating their targets.
Detailed implementation plans are expected by mid-July. Particular attention is being paid to enterprises that are classified as C or worse in terms of environmental protection during the heating season, which will potentially require them to reduce production by more than 50% compared to normal standards.
Discussions and meetings on production restrictions are ongoing in various provinces. However, the specifics of the goals, scope and methods of implementation remain unclear.
According to Fastmarkets, the Chinese authorities are considering implementing stricter targets for steel production in the country to reduce energy consumption and carbon emissions.
On June 18, the Fujian provincial government sent a notice to local steel mills that it would introduce a reduction in steel production from June to December this year. Last year, the region produced 34.06 million tons of steel, ranking tenth among China’s leading steel centers. According to the National Bureau of Statistics, in January-May, local steelmakers produced about 14.64 million tons of steel (+23% y/y).
According to market participants, steel mills with blast furnaces will suffer the most due to high carbon emissions, with priority given to electric arc furnaces.
According to the latest assumptions of market players, who do not yet know the size of the production cut across the country, it could be around 20 million tons. An increase in this figure to slightly higher than this is likely to hit iron ore prices and, as a result, could lead to lower rolled steel prices.
A potential doubling of the reduction to 40 million tons could lead to a shortage of rolled products in the Chinese market, which, according to one analyst, would drive up prices for both steel and raw materials.
However, regardless of the scale, prices for hot rolled coil (HRC), the leading producer of which is Hebei Province, are likely to benefit from the situation. Demand for HRC is less sensitive to seasonal factors, and will be supported by exports and potential growth in infrastructure construction after stimulus measures. According to the analyst, steady demand combined with a possible reduction in supply will reduce iron ore stocks in the third quarter and contribute to price growth in the second half of the year.
Iron ore market participants have taken a wait-and-see attitude, preferring to wait for new announcements from the provinces.
As GMK Center reported earlier, in January-May 2024, Chinese steel companies reduced steel production by 1.4% y/y – to 438.61 million tons. Analysts expect steel production in China to decline by 1.1% y/y in 2024.
Source:GMK Center