China’s steel associations call for limiting steel production

Chinese steel associations are calling for a curb on steel production to curb the rapid fall in rolled steel prices that has been observed recently due to lower-than-expected demand and weak margins at mills along with high inventories. This was reported by SteelOrbis, citing official statements and local media.

Some associations have already announced plans to reduce steel production. In particular, on March 7, Yunnan province released a plan according to which local steelmakers should reduce the production of construction steel by 500 thousand tons per month (more than 40% of average monthly production), and Guangdong province should reduce steel production by 20-50% starting from March 14.

The sharp drop in profits of more than 200 steel companies in the above provinces reduced capacity utilization to 75.6% in March, while under good market conditions, the mills operate at more than 90% of capacity.

The associations expect that the reduction in steel production will halt the continuous decline in the steel market that has been observed since the Chinese New Year holidays. High inventories at the time signaled that demand was not improving. Since mid-February, the situation on the market has only deteriorated. As of March 10, stocks of the five main types of rolled steel in 21 cities in China reached 14.22 million tons, up 4% from the end of February. At the same time, this figure increased by 33% compared to the beginning of February.

«The introduction of restrictions has improved market sentiment, as more and more associations consider it necessary to limit production in the current environment. The prices of rolled steel will try to rise, but we should not expect a significant increase in March,» said a representative of a Chinese steel mill.

As GMK Center reported earlier, in January-February 2024, Chinese steel companies increased steel production by 1.6% compared to the same period in 2023, to 167.96 million tons. Average daily steel production for this period amounted to 2.8 million tons compared to 2.18 million tons in December and 2.86 million tons in January-February 2023.

In 2023, China produced 1.019 billion tons of steel, up 0.6% from 2022. Thus, the downward trend in the country’s steel industry has stopped after two consecutive years of declining production.