China: Crude steel production may be under pressure in Feb

According to data from China Iron and Steel Association (CISA), in January, the country's pig iron output was at 68.6 million tonnes (mnt), a y-o-y decrease of 4.9%. Crude steel output touched 81.69 mnt, a y-o-y decrease of 11.2% while finished steel output was at 107.95 mnt, a y-o-y drop of 1.9%.

China's crude steel production in Jan'22 was reduced by the combined factors of seasonal challenges and the Winter Olympics

Large and medium-sized steel mills produced 54.09 mnt of pig iron, down by 10.4% y-o-y. while crude steel production was at 61.6 mnt, down 10.8% y-o-y. Around 59.27 mnt of finished steel was produced, a decrease of 9.4% 61.6 mnt.

National daily output dips m-o-m

According to CISA data, in January, the national daily output of pig iron was at 2.213 mnt, a dip of 4.9% m-o-m. The daily output of crude steel was at 2.635 mnt, a decrease of 5.2% m-o-m while the daily output of finished steel touched 3.482 mnt, a drop of 4.9% from the previous month.

For the large and medium-sized steel mills, the daily output of pig iron was 1.745 mnt, up 0.8% m-o-m while the daily output of crude steel was 1.987 mnt, up 0.3% m-o-m. The daily output of finished steel was at 1.912 mnt, up 2.3% m-o-m.

The average daily output of pig iron, crude steel and steel of the domestic steelmakers were affected by seasonal production restrictions. Mills have, however, guaranteed a certain volume, to ensure normalization of domestic production.

In February, seasonal production restrictions were the main challenge. In the first half of the month, production was curbed by the Spring Festival holidays and Winter Olympics.

According to Lange Steel, the capacity utilisation of the small and medium mills in the first three weeks of February was 70.9%, down 2.4%from January.

However, w-o-w data showed that these mills' capacity utilisation had rebounded. The 10-day data of the key large and medium-sized mills showed that they had maintained stability in production. With the government keeping supply and prices stable, production showed an increase.

According to CISA data, average daily output of pig iron at key steel mills in early February was at 1.7196 mnt, down 1.48% m-o-m and 11.81% y-o-y. The total average daily output touched 1.9235 mnt, a 10-day decrease of 4.47% m-o-m and a y-o-y decrease of 12.78%.

Outlook

At present, the domestic steel market is still stocked for winter. Driven by a strong expectation of steady growth, domestic demand has been good from the beginning of the year. However, post-the Spring Festival, raw materials prices have surged, triggering government intervention to cool down prices.

Carbon futures and spot markets were volatile.

Higher liquidity levels at the beginning of the year allowed resumption of key infrastructure projects. Construction's downstream procurement may be delayed, but there is no doubt that infrastructure investment will play a role in supporting the economy.

From the perspective of supply, production curbs in autumn and winter and price interventions squeezed profits of the large and medium-mills. This limited their production.

Therefore, domestic steel production in February will be under pressure. According to Lange Steel Research Center, the national daily crude steel production in February may remain at 2.5-2.6 mnt, while daily production of key large and medium mills will be at around 1.9-2 mnt.