China's annual steel output to fall for first time since 2016

China is on track to reduce its 2021 crude steel output below the 2020 level for the first time since 2016, even if the ongoing output cuts are not widened further for the rest of 2021, as indicated by S&P Global Platts calculations based on data from various mills, traders and National Bureau of Statistics.

China's August crude steel output dropped 13% on the year and fell 4.1% on the month, to 80.24 million mt, the lowest level seen since March 2020, according to data released by NBS Sept. 15.

China's crude steel output is likely to drop further in September by around 3 million mt from August levels, and remain lower in October, as a few major steelmaking provinces have widened steel output cuts since early September due to energy consumption controls, Platts calculations showed.

China has been asking steel mills since July to curtail production, a move seen as a part of the country's broader plans to meet its ambitious carbon goals. China's steel industry accounts for around 15%-20% of the country's annual carbon emissions.

2021 crude steel output lower

Over January-August, China's crude steel output reached 733.02 million mt, up by 5.3%, or 36.89 million mt, on the year, according to NBS.

Meanwhile, China's pig iron output in August decreased 11% on the year and was down 1.8% on the month, to 71.53 million mt.

Over January-August, pig iron output rose 0.6% on the year, to 605.38 million mt.

Even if China's daily crude steel output over September-December is kept at what it was in August, at 2.685 million mt/day, the country's crude steel output in 2021 is set to fall 0.4% from 1.065 billion mt in 2020 to 1.061 billion mt, Platts calculations showed.

As China's daily crude steel output in September-October is expected to continue falling from August due to widening output cuts in Liaoning, Jiangsu, Shandong, Yunnan, Zhejiang and Guangdong provinces, the actual decline in China's crude steel production in 2021 could be more than 0.4% on the year.

Weak steel demand

China's steel prices are unlikely to gain much momentum from output cuts in Q4, mainly because domestic demand has also softened due to a slowing property sector, according to sources.

Property steel demand in 2021 is likely to drop on a yearly basis as well, for the first time since 2016, as tightened credit to the sector has largely slowed the new home starts, sources said.

Meanwhile, Chinese property developer Evergrande Group on Sept. 14 flagged a possible default on loans due to a slowdown in property sales.

The Shenzhen-based company has incurred liabilities of roughly $305 billion. A default on credit could likely spark a domino effect in China's property sector, and result in lower steel and raw materials prices in Q4, according to S&P Global Platts Analytics.

According to Platts calculations based on NBS data, China's floor space of property new home starts in August fell 17% on the year. The total new home starts over January-August fell 3% on the year.

NBS data also showed the infrastructure fixed asset investment, or FAI, in August fell 7% on the year, although the investment over the first eight months was still 3% higher on the year.

Some market sources said the downward trend in China's infrastructure FAI was unlikely to see a reverse in 2021, as China remains determined to address hidden debt risks of local governments.

The property and infrastructure construction accounts for 55% of China's steel consumption, according to Platts Analytics. The slowdown in the construction sector is unlikely to be offset by manufacturing sector, as a lackluster property construction also dents the manufacturing of engineering machineries.