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China's winter steel output cuts down 76% on year, impact on Q4 output seen slight

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China's winter steel output cuts down 76% on year, impact on Q4 output seen slight

Singapore — The annual pig iron production suspension ordered by the cities of Handan and Tangshan in northern China's Hebei province to control air pollution from Oct. 1 to Dec. 31 is 76% lower this year than the restrictions imposed a year earlier, S&P Global Platts calculated Oct. 21 based on official announcements.

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Further, the output cuts had not been implemented at most local mills in the two cities as of Oct. 20, market participants told Platts.

As a result, the restrictions are unlikely to have a big impact on China's steel production levels in the fourth quarter, particularly as they have not been strictly implemented or adhered to.

Market sources said pig iron and crude steel production would continue hovering at high levels in Q4, putting downward pressure on Chinese steel prices.

According to the output cut measures announced by Handan city, local mills were ordered to suspend about 29% of their pig iron making capacity, or 2.29 million mt, from Oct.1 to Dec. 31. This is lower than the 45%-50% capacity suspension that was actually carried out over the same period in 2019, which resulted in a pig iron output loss of about 3.63 million mt, Platts calculations showed.

Tangshan city announced its winter output cuts in early October, with orders to suspend 1.99 million mt of pig iron capacity over October-December. Tangshan ordered pig iron suspensions of 13.97 million mt over the same period last year, but the move was poorly implemented.

The pig iron suspensions ordered by Handan and Tangshan over October-December 2020 total 4.28 million mt, down 76% year on year. Market sources said the actual output cuts carried out by mills would definitely be lower than this volume.

Some sources said steel demand from infrastructure and manufacturing was quite strong in October, but high steel production and soaring market inventories had undermined the upward momentum in the domestic steel market, and a similar supply-demand pattern was likely to continue into November.