Steel mills in China’s Yunnan province cut production

Plants are scrambling to avoid losses amid weak demand and rising costs

Steel mills in Yunnan province in southwestern China have begun to cut production in an effort to mitigate losses. This is reported by Caixin Global.

According to the region’s steel industry association, the move was driven by a weaker-than-expected recovery in market demand after the New Year holidays and higher iron ore and coal prices.

The association’s member companies have been coordinating efforts to control production since early March. A total reduction in construction steel output by 500 thousand tons is planned.

Kunming Iron & Steel Holding, the largest steelmaker in Yunnan, plans to cut production by 150 kt in March as it will shut down one of its blast furnaces for maintenance for 10-13 days. The planned reduction is approximately 2.5% of the company’s annual production based on 2022 data. For the first three quarters of 2023, Kunming Iron & Steel recorded a net loss of 1.3 billion yuan ($180 million).

The situation in Yunnan highlights the challenges currently faced by the Chinese steel industry, which is affected by sluggish demand from the real estate sector, said Xu Xiangchun, chief information officer of Mysteel.

As an inland province, Yunnan faces higher iron ore and coke costs and a more isolated market with low demand, he said.

In 2023, steel mills in Yunnan produced 21.2 million tons of steel (2.1% of the country’s total). Xu Xiangchun notes that demand in the steel market in China remains generally low as inventories of steel mills continue to grow.

In 2023, large steel companies reported a total profit of 85.5 billion yuan, down 12.47% year-on-year. According to the China Steel Industry Association, the average return on sales was 1.32%, down 0.17 percentage points.

The industry also faces significant disparities in profits between large steel mills and small and medium-sized enterprises.

At the same time, Kallanish reports that Jiangsu Yonggang Group, a company based in the eastern province of Jiangsu, has commissioned blast furnace No. 2 with a production capacity of about 1.8 million tons per year. The unit produced its first batch of pig iron in early March. According to the province’s Department of Industry and Information Technology, the company intends to build three blast furnaces with an annual capacity of over 1.2 million tons each, according to the 2019 capacity replacement plan.

As GMK Center reported earlier, China’s steelmaking companies produced 1.019 billion tons of steel in 2023, up 0.6% from 2022. Thus, the downward trend in the country’s steel industry has stopped after two consecutive years of declining production. Pig iron production in China in 2023 amounted to 871 million tons, up 0.7% y/y.