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ANALYSIS: China's steel output cuts continue to gather pace in September

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ANALYSIS: China's steel output cuts continue to gather pace in September

亮点

More cuts expected in eastern, southern China

Sale margins rise in tandem

China's steel output cuts have gathered pace in September and are expected to widen further in the coming weeks as the country looks to cap 2021 crude steel output and emphasizes on lowering energy usage, sources said.

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A few mill sources expected China's steel output cuts to widen further in late-September or October, mainly as the overall cuts by mid-September have remained insufficient to keep the country's 2021 crude steel output within 2020 levels. During January-July, China's crude steel output was 8%, or 48 million mt, higher on the year.

More output cuts are expected to be seen in eastern and southern China in the coming weeks, also because Jiangsu, Zhejiang, Yunnan, Guangxi and Guangdong are still lagging behind their reduction targets of energy consumption.

In tandem with the accelerated steel output cuts, Chinese domestic hot rolled coil sales margins rose 41% to $165/mt on Sept. 13 from $117/mt on Sept. 1. The S&P Global Platts IODEX 62% Fe index dropped 15% to $123/mt over the same period from $144/mt.

Output cuts speed up

Hebei, the largest steelmaking province in China, has so far still been the only province on track to its annual steel output target, led by strict cuts carried out in Tangshan city from March. Consequently, the province has also been on track to lower its energy consumption target.

Steel mills in Jiangsu, Shandong and Liaoning -- the second, third and fourth largest steelmaking provinces in China, respectively -- have gradually launched steel output cuts since the start of September.

As a result, the crude steel output in both Jiangsu and Shandong are likely to drop more than 1 million mt on the year in September. In Liaoning, it may fall about 600,000 mt on the year, showed Platts estimates based on data from mill sources and traders.

Yunnan province is at risk of exceeding its 2021 energy consumption target, and has ordered local steelmakers to reduce crude steel output by 30% in September. This is expected to decrease its crude steel output in September by about 500,000 mt on the year.

Major mills in Guangxi province have planned to trim crude steel output cuts from late-September while electric arc furnace steel production in Guangdong and Zhejiang provinces might be dented in September due to energy consumption controls, market sources in southern and eastern China said.

Price uptick limited

China's crude steel output is expected to trend downward in the remainder of 2021, as output cuts are political missions for steelmakers, some mill sources said.

However, even if the cuts are widened further in the fourth quarter, steel prices are unlikely to increase significantly, partly as falling iron ore prices have eased production costs, and partly because the impact from a slowing property market could be felt by the steel market in Q4, a few sources said.

The slowdown in property construction as a result of tightened credit to this sector may lead property steel demand to a year-on-year decline in the second half, and also dent the manufacturing of engineering machineries.

By mid-September, the recovery of infrastructure construction has remained milder than a year earlier, some steel traders said. China will accelerate the issuance of local government special bonds in Q4, but the support generated by the bonds to infrastructure may not take effect until early 2022.

Steel output cuts in China:

Crude steel output target in 2021
Crude steel output year-on-year growth Jan-Jul
Platts estimates of actual crude steel output cuts in Sep
Hebei
Down 21.7 million mt on year to 228.07 million mt
-5.6 million mt
-0.4 million mt on month;null -4.5 million mt on year
Jiangsu
Within 2020 level of 121.08 million mt
+6.5 million mt
-0.5 million mt on month;null -1.1 million mt on year
Shandong
Down 3.44 million mt to 76.5 million mt
+5.8 million mt
-0.5 million mt on month;null -1.2 million mt on year
Liaoning
Within 2020 level of 76.1 million mt
+3.5 million mt
-0.5 million mt on month;null -0.6 million mt on year
Yunnan
--
+2.8 million mt
-0.6 million mt on month;null -0.5 million mt on year
Crude steel output targets and output cuts are based on state-owned media reports, mill sources and traders
Unit: million mt