Posted on 26 Jul 2021
East China’s Shandong province has begun warning steelmakers in the province that they must trim production between now and December 31 to comply with Beijing’s pledge to keep 2021 crude steel output below the 2020 total, Mysteel Global has learned.
“We have received a notice from the local government to cut our steel output for the current half year, and we have already done some revision on our production plans for the coming months,” an iron ore official with a Shandong-based steelmaker confirmed. “We have started to control our iron ore stocks in accordance with our new plan,” he added.
Rumors had been circulating in the market since Thursday that the Shandong government had set a limit on the province’s crude steel output in 2021 to within 76.5 million tonnes, and that local steel mills are required to curtail their production by differing degrees, based on varying criteria such as the technical sophistication of their environmental protection facilities and energy efficiency.
On Friday, a source close to the Shandong government refused to comment in detail about its efforts to bring down the province’s steel output but confirmed that the government is moving to realize this. He denied that the government has finalized the exact crude steel output volume for this year.
Already, governments in other Chinese provinces such as Jiangsu and Anhui in East China, Jiangxi in Southeast China and Gansu in Northwest China have requested their local steel mills to reduce steel production for the remainder of the year, as reported.
Shandong produced around 79.9 million tonnes of crude steel in 2020, and over January-June, total crude steel output reached around 45.3 million tonnes – higher by a large 6.58 million tonnes on year, according to the historical data from the National Bureau of Statistics (NBS). To ensure that the province’s full-year 2021 total falls below last year’s, during the current half it would need to slash output by over 23% from H1 to just 34.6 million tonnes, Mysteel Global notes.
Nationally, China produced 1.065 billion tonnes of crude steel in 2020, or up 7% on year, according to NBS’s updated data. The central government has not officially nominated a goal for this year’s output in tonnage terms but has said production must not exceed last year’s, as reported. Over January-June this year, China’s crude steel output grew by nearly 12% on year to 563.3 million tonnes, according to NBS data.
In Shandong, irrespective of how it will be achieved, market sources insist that steel mills there will definitely rein-in their production in coming months.
“From what I’ve seen, some local steel mills have scheduled ‘maintenance’ stoppages and their raw materials procurement has already slowed down,” a Shandong-based iron ore trader remarked. “Some stoppages will happen soon, others perhaps a little later, but it seems they will happen,” he said Friday.
“In fact, over the past two days, the intensifying speculation about reduced steel output this half has seen iron ore market sentiment quickly turn bearish. Ore prices have slumped sharply as some traders are rushing to sell the stocks at hand,” he added.
Mysteel SEADEX 62% Australian Fines, for example, had fallen to $201.4/dmt CFR Qingdao as of July 22, a low since May 31, or plunging $15.6/dmt in two days. The index was also $18/dmt lower from July 1.
Another iron ore trader in Rizhao in East Shandong had heard that some local steel mills had halted blast furnace production recently, though he was not sure if these were for controlling production or just some routine maintenance during the steel demand slack season.
Not surprisingly, the intensifying speculation about steel production cuts is giving a strong boost to steel prices. According to Mysteel’s assessment, China’s national price of HRB400E 20mm dia rebar, for example, had climbed to Yuan 5,342/tonne ($825/t) as of July 22, or up Yuan 393/t from July 1.
The China Iron and Steel Association recognizes that momentum towards industry-wide cuts is building. At an online webinar held by the Shanghai Futures Exchange on Friday, Diao Li, the vice director of CISA’s Finance and Assets Department, said that almost all provinces have already received official directives from the central government that steelmakers under their jurisdiction must trim their crude steel output. The whole process is advancing steadily now, Diao confirmed.
He also predicted that to reach Beijing’s nominated goal, average daily crude steel output for the second half year may need to average around 2.7 million tonnes/day, compared with around 3.1 million t/d over the first half year, which would be a remarkable decline.
A Shanghai-based steel analyst also conceded that to comply with Beijing’s wishes, “we are still far from the target.” Nevertheless, he had no doubt that the goal would be reached. “This will be one of the key KPIs for the local authorities this year, and they will do whatever it takes to achieve this,” he stressed. “I believe that in the next few weeks, more provinces will finalize their numbers and plans,” he told Mysteel Global.
However, an Indian market source closely monitoring the Chinese steel market did not share the same confidence.
“I have heard about the 76.5 million tonnes-target for Shandong this year, with its over 40 million tonnes of output in the first half. That will be a deep cut and appears very aggressive. Can the province do it at all?” he wondered.
Source:Mysteel Global
