China wants to curb steel production. Some say it’s “practically impossible” – .

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China wants to curb steel production. Some say it’s “practically impossible” – .


A worker extracts a sample of molten metal during a government-organized visit to a factory of Tiangong International, a manufacturer of high-quality steel and tools, in Zhenjiang, eastern Jiangsu Province from China, October 12, 2020.
Hector Rétamal | AFP | Getty Images
China wants to reduce its steel production this year, but that could prove difficult.
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 brake application to bring that down.

Paul Bartholomew

Senior Metals Analyst, S&P Global Platts

Production is expected to be lower in the second half of the year, but pushing it below 2020 levels can be a challenge, analysts say.

“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?

However, an executive from Chinese steelmaker Hesteel said steel mills need to pay more attention to lowering production in order to comply with government policy, especially state-owned steel mills.

“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.

It is very difficult for the authorities to control production given the number of private and public factories in China, said Zhuang Bin Jun, former director of the business development group at Fortescue Metals.

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.

High steel prices and high steel production (are) really just a symptom of high demand for steel.

Rohan Kendall

Head of Iron Ore Research, Wood Mackenzie

Bartholomew of S&P Global Platts said attempting to limit steel production would push up prices and factories that are not affected by government restrictions will be encouraged to produce more.

“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.

Demand outlook

The best way to cut production would be to focus on reducing demand, although such policies can end up weakening the economy, Bartholomew said.

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.

Other market watchers expect demand to fall, but doubt the drop is enough to cap production at 2020 levels or lower.

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.”

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