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China's monthly steel output falls first time in almost 4 years

Singapore — China's crude steel production dropped 0.6% on the year to 81.52 million mt in October, marking the first time output has fallen on an yearly basis since early 2016, according to data released late Thursday by the National Bureau of Statistics.

The decrease was mainly due to mandated production cuts in early October to ensure the skies around Beijing were clear ahead of celebrations for the 70th anniversary of the People's Republic of China.

Daily output in October fell by 4.7% on the month to 2.63 million mt/day, which annualized at 959.83 million mt.

Over January-October, China's crude steel output increased by 7.4% on the year to 829.22 million mt.

China's pig iron output in October dropped by 2.7% on the year to 65.58 million mt. But output over January-October remained 5.4% higher on the year at 675.18 million mt.

Market sources expected crude steel output to rebound in November on both a monthly and yearly basis because the production cut orders have been relaxed in northern China, where most steelmaking capacity is located.

Earlier in the week, China's government ordered mills to improve their environmental equipment to lower emissions in the Yangtze River Delta and Fen Wei Plain over the winter heating period, which normally lasts from mid-November to mid-March.

Baowu Group has been told to complete ultra-low emissions modernization on coke ovens and power plants at its Shanghai operations by the end of this year. Some 35 mills in Jiangsu province must complete upgrades relating to 82 million mt/year of production capacity.

Steelmakers in Shanxi and Shaanxi provinces will also be affected by the environmental push.

Market participants said it remained to be seen how serious the impact would be. One Jiangsu-based mill manager said the upgrade would add around Yuan 100/mt ($14.2/mt) to production costs.

Yangtze River Delta covers eastern regions of Shanghai municipality, Jiangsu, Zhejiang and Anhui province. Fen Wei Plain includes Shanxi, Shaanxi, and Henan province.

Chinese traders have been adding more scrap into the basic oxygen furnaces to keep production high and offset the loss of sinter feed. Therefore, steel production could remain at high levels over the coming months even if the environmental protection measures are strictly enforced.

-- Analyst Jing Zhang, jing.zhang@spglobal.com

-- Edited by Kshitiz Goliya, kshitiz.goliya@spglobal.com