The market is worried about the uncertainty with production restrictions
Steel production in China is likely to increase in August this year compared to July, according to market participants. However, it remains unclear when exactly the country’s steel mills will reduce steel production in order to keep the annual rate at the level of 2022. S&P Global reports about it.
According to the China Iron and Steel Association (CISA), the average daily steel production in China from August 1 to 10 was 2.954 million tons, which is 0.8% higher than the July average and 9.1% year-on-year. As of August 10, inventories of steel mills and spot markets monitored by CISA reached 25.69 million tons, which is 7.5% more than at the end of July, but 6% less year-on-year.
It remains unclear when Chinese mills will cut production to keep annual steel output at 2022 levels. Sources at businesses in the north and east of the country said some large factories in those regions have received or will receive verbal orders to take this step later this year. It has already been reported that China’s largest steel producer Baowu Group as well as some large steel mills in Shandong province, have received similar orders. The market speculates that Hebei and Jiangsu provinces will also soon verbally notify local factories of the need to cut production.
Mills are likely to receive only verbal orders directly from local governments, rather than official announcements, so it’s hard to predict how much steel output will decline in the coming months. Production may slow in September-December, but weak demand will limit the rise in steel prices.
The market also expects China to increase support for the infrastructure sector by the end of this year, but this is unlikely to fully offset the drop in demand for steel in real estate-related sectors. According to the National Bureau of Statistics, the area of new construction in July 2023 fell by 30.2% m/m and 26.5% y/y. The country’s investments in infrastructure grew by 4.6% y/y in July, but this growth slowed down compared to June (+6.4% y/y).
As GMK Center reported earlier, China in July 2023 increased steel production by 11.5% y/y – up to 90.8 million tons. Compared to June 2023, the volume of steel production in this period decreased by 0.34%. The drop in steel output in July compared to the previous month was due to production restrictions in Tangshan, China’s leading steelmaking center. In addition, steel production was reduced by a number of steel mills in the southwestern province of Sichuan.