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In the first half of 2021, Chinese steel mills produced nearly 12% more crude steel compared to the same period in 2020, according to a note from Wood Mackenzie.
China produced a monthly record 99.45 million tonnes of steel in May, although that number fell to 93.88 million tonnes in June, Reuters reported.
The steel sector is one of China’s biggest polluters, producing around 10-20% of the country’s carbon emissions. Beijing has targeted the industry as part of its attempt to cut carbon emissions and reach net zero by 2060.
“It would involve a real break in the brakes to reduce that. We believe steel production will increase by around 8-9% this year, ”Paul Bartholomew, chief steel analyst at S&P Global Platts told CNBC on Thursday. .
Industry insiders who spoke at virtual forums as part of Singapore’s International Iron Week in July made similar points.
It will be “virtually impossible” for China to produce less steel this year compared to last year, Rohan Kendall, iron ore research manager at Wood Mackenzie, told the Singapore Iron Ore Forum.
“No other choice” than to comply?
“We have no choice but to obey government rules,” Mu Guoqiang, steel import and export manager at Hesteel, told Fastmarkets’ Singapore Steel Forum.
China says it has pledged to continue cuts in steel production, and its factories in Tangshan steel town have reportedly cut production after being warned of sanctions for overproduction.
But not everyone agrees that the government will do what it wants.
The demand for steel is very strong in the country and production is not expected to decline in the coming months if the profitability of steel production is as good as it was in the first half of the year, Zhuang told the forum. iron ore.
“It’s important to note that factories have been making decent money for much of this year… and sentiment is generally still positive, so the industry will want to take all the profits that come with producing a lot of steel. “, did he declare.
Kendall of Wood Mackenzie said authorities could crack down on the real estate or construction sectors – which use a lot of steel – to cool demand and prices.
“High steel prices and high steel production (are) really just a symptom of high demand for steel,” he said.
Erik Hedborg, senior analyst at the commodities intelligence firm CRU, said demand for steel could be weaker in the second half of the year in part because the construction industry has weakened.
In addition, demand for consumer goods containing steel from China is now moderating after remaining at high levels over the past 12 months, he said at the iron ore forum.
“Definitely, we’re going to see a drop in demand for steel in China because of this,” he said.
As to whether demand will drop enough to drop steel production below 2020 levels, Hedborg said: “We are skeptical.”