China's steel output rebounded on a monthly basis for the first time in seven months in November, and this upward trend is likely to continue in December and beyond as steelmakers ramp up after completing 2021 output cut requirements in November and see an improvement in margins.
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Expectations of additional monetary easing and supportive policies in the property and infrastructure sectors in 2022 were boosting sentiment for steel demand, and these would help offset the rise in supply, industry sources said.
China's pig iron and crude steel output in November rebounded by 0.1% and 1.2% from October levels, to 2.06 million mt/day and 2.31 million mt/day, respectively, according to data released Dec. 15 by the National Bureau of Statistics. But on a year-on-year basis, the November pig iron and crude steel output were still 16.6% and 22% lower at 61.73 million mt and 69.31 million mt, respectively.
Over January-November, China's crude steel output reached 946.36 million mt, down 2.6%, or 25.26 million mt, on the year, according to NBS. Pig iron output over the same period dropped 4.2% on the year to 796.23 million mt.
Steel output torecover in December
China is expected to continue to cap its steel production in 2022 within 2021 levels as it aims to achieve its carbon goals.But steelmakers, who completed their mandatory output cut requirements for 2021 by the end of November would try to boost their production in December, so that there will be more output quotas for 2022, some market sources said.
Healthy profit margins are another incentive that could drive China's steel production higher in December versus November. China's domestic hot-rolled coil and rebar sales profit margins were $106/mt and $116/mt on Dec. 14, according to S&P Global Platts Analytics.
Meanwhile, steel output cuts have continued in Hebei province's Tangshan and Handan cities in December, and these cuts are expected to carry on through the next two months, mostly to reduce smog during the winter months and improve air quality for the Winter Olympics to be held in Beijing over Feb. 4-20. But the output cuts at these two cities are unlikely to deepen in the next few months, sources added.
China's crude steel output in the first quarter of 2022 may remain close to but would not exceed the level of 3.01 million mt/day seen in Q1 2021, sources said, adding that Q1 2022 output would be still much higher than November's level.
Downstream weak in November
China's property and infrastructure sectors registered negative growth in November for the eighth and seventh consecutive months, respectively. The two sectors, together with construction-related manufacturing, could drive more than 70% of China's steel consumption.
Some sources said the key problem behind the slowdown in construction in both the property and infrastructure sectors was lack of financing or funding. China tightened liquidity for the two sectors for most of 2021 in a bid to address debt risks. However, in order to ensure steady economic growth for 2022, China in December started loosening its monetary policy, eased financing restrictions in the property sector and accelerated fiscal spending.
More of such proactive policies are expected to be introduced in 2022, aimed at cushioning the slowdown in property investment, while at the same time, boosting infrastructure investment to stabilize economic growth, market participants said.
Although all these stimulus policies can only reach the property and infrastructure sectors by the end of Q1 or even Q2 2022, some sources said the steel market outlook has improved due to anticipation of further monetary policy easing next year.
A few sources said China's steel prices were unlikely to increase due to rising steel production. However, any downside in prices could also be limited as an improvement in market liquidity would encourage traders to restock and enable the market to hold more inventories.
According to Platts calculations based on NBS data, China's floor space of property new home starts in November fell by 21% on the year, while the infrastructure fixed asset investment fell by 4% on the year.