China associations offer 2021 steel output cut proposals

Posted on 01 February 2021

Associations in China’s steel industry have been offering thoughts on how to bring down China’s steel output in 2021 in response to the call by China’s Ministry of Industry and Information Technology (MIIT), and China Chamber of Commerce for Metallurgical Enterprises (CCCME), an alliance of China’s privately-owned steel mills, has been the latest with a few options in the aspects of steel trade and steelmaking raw materials consumption.

CCCME proposed that China may consider reducing steel exports while increasing steel imports, curtailing iron ore imports while buying more steel scrap from abroad and to rectify the coke fundamentals, according to a post of the alliance on January 27.

MIIT’s call for lower steel output is with challenges as the country’s steel demand may continue to grow, approximating 1.1 billion tonnes for this year in crude steel in the context of higher growth in the gross domestic product, according to CCCME.

But the trimming will still be possible if China reduce its steel exports by 30 million tonnes or 50% on year to supplement the supply to the domestic demand, and the related authorities may even issue some polices to ascertain this to happen, and at the same time, China should increase semi-finished and finished steel imports by 5 million tonnes each as well as increasing steel scrap imports by 10 million tonnes.

The tweaking in the steel trade will satisfy the growing steel demand in the domestic market, and higher steel scrap imports will help to leverage against China’s heavy reliance on imported iron ore, Mysteel Global understand.

CCCME, however, is fully aware of the risks of possible steel prices volatility with the changes in the supply-demand balance, and it, thus, reminded the steel industry of “a gradual, proper, and measured pace in output trimming”.

The China Iron & Steel Association (CISA), the association with all the major Chinese steel mills as its members, agreed that production decrease is still achievable albeit a marginal increase in demand, believing that “the market will automatically adjust itself via steel imports and (consuming) steel inventories” when having an annual meeting with its members on January 27.

China’s steel inventories, after digesting since last April, have fallen to a reasonable level but the volume is still higher on year, according to the association.

Other than the possible measures proposed, an analyst from a Shanghai-based steel trading house also brought up the possibility for Beijing to bring down the country’s steel production by intensifying the control over carbon emission, which will be in line with Beijing’s commitment of carbon emission peak by 2030 and carbon neutral by 2060 anyway.

Many market sources, however, are not as confident as the associations, and a ferrous commodities trader in Central China rebutted the likelihood.

“It is very unlikely, so long as the steel demand grows, so will the output, the only difference will be by how much,” he said, pointing out, though, that it is on the condition that the Chinese authorities not interfere with administrative measures.

“If the market has its own way, Beijing’s investment in the infrastructure will still be pushing for higher steel demand, automaking, machinery manufacturing, and white goods have all appeared rather sound, property market is the only uncertain sector, but that alone will not overturn the demand,” he elaborated.

The Shanghai analyst also pointed out that the real agenda behind lower steel production may be more about iron ore than steel after Beijing had witnessed the exposure and vulnerability of the Chinese steel mills with its heavy reliance on imported iron ore.

“Last year, steel margins have been largely eaten up by the soaring raw material prices (despite better demand),” he shared.

The trader in Central China agreed, noting that together with lower steel output, CISA also mentioned lower iron ore imports and higher scrap purchases from abroad.

Recently, Chinese steel mills have been propelled to cut down on production after having maintained high steel output for so long, which was more to do with lossmaking with soaring raw materials prices of iron ore, scrap, and coke than waning in demand, Mysteel Global noted.

Meanwhile, some of the China’s steel market participants has already adopted precautious measures, being ready for any changes in steel-related policies.

“Some Chinese steel importers have already added related clauses in their contracts regarding how to settle the disputes should China revise its steel exports tariffs,” a Shanghai-based steel market watcher shared on Thursday.

In 2020, a year on the spur of Beijing’s effort to sustain the economy against the adverse impact of the COVID-19, China’s actual steel demand grew by 7% on year, and its steel output, accordingly, increased by 5.2% on year to a record high of 1.05 billion tonnes, as reported.

Source : Mysteel Global