China: Dec output must not exceed 95 mn t to meet CY'21 targets

Data for the first half (H1) reveals that China's output cut pressure in H2 is tremendous. The State Bureau of Statistics shows that the crude steel output during Jan-Jun'21 was 563.326 mn t, up 59.121 mn t y-o-y. The output reduction target set by key provinces was 26 mn t. From July till end-December, each province will have to not only handle the reduction task but also do away with the added volume during H1, so that the total crude steel output can be reduced to 85 mn t, informed Zhang Longqiang, party secretary-cum-president of China's Metallurgical Info and Standardization Institute (MIS).

The H2 data reveals that the output reduction target can be met as scheduled. From July onwards, the government has expedited the output reduction work through de-capacity review. The month-wise data of the State Bureau of Statistics shows that output of crude steel in March was recorded at a maximum y-o-y increase of 19%, while it dropped to -8.4% y-o-y in July and further declined to -23.3% y-o-y in October. From the cumulative perspective, it showed that during Jan-Apr'21, the output registered y-o-y increase of 15.8% (maximum this year), with the growth rate continuing to dip till it appeared at 0.7% y-o-y decline during Jan-Oct'21. Crude steel reduction during Jan-Oct has reached 65.482 mn t. According to inferred data, crude steel output in November will be around 68.19 mn t and during Jan-Nov'21, at 85.698 mn t. Hence, the task of having crude steel output in CY'21 to be 26 mn t lower than CY'20's level can be achieved if the December output is no more than 95.531 mn t.

Outcome of crude steel reduction

Under policies such as "carbon peak" and "carbon neutrality" etc, the steel industry achieved a y-o-y decrease in output during a short span of four months, which effectively curbed the fast-rising iron ore prices.

Iron ore prices have been contained. The continuing growth in crude steel output over the years had, to some extent, fuelled the iron ore price rally. In May, iron ore price once climbed to $230.59/tonne, apparently deflecting from fundamentals. From July, as crude steel output cuts started showing results, iron ore prices also started dropping. As per data with CISA, the imported iron ore price till mid-Sept'21 dropped to $102.19/t, marking a decrease of 55.7%. With the increasing volume to be reduced, iron ore prices, by mid-Nov'21, came down to $85.8/t, a drop of 62.8%. The imported iron ore price and cumulative volume of crude steel reduction has shown close correlation.

More sustainable profits for steel industry

CISA data shows that during Jan-Oct'21, the key steel mills' operating income touched RMB 5.88 trillion, up 40% y-o-y with total profits at RMB 345 billion, up 108.3% y-o-y. The profit rate of sales was 5.87%, up 1.92 percentage points y-o-y. It is predicted that the steel industry will apparently have more profits than last year, which cannot be realised without crude steel reduction.

Mills with lower environmental protection rating, lower energy-efficiency and outdated equipment will be hit the most, forcing them to expedite transformation and opt for mergers.

In CY'21, restructuring and mergers amongst State-owned and private mills has speeded up. CISA data shows that during Jan-Oct'21, the top 10 mills accounted for 41% of the national total crude steel output, moving up 2.09 percentage points from 39% seen in whole of CY'20.

Necessity to regulate crude steel output in CY'22

It is proposed to continue this campaign because of following considerations:

• It is conducive to further supply-side reforms in the steel industry.
  
  
• Help consolidate the outcome of crude steel output cuts achieved in CY'21.
  
  
• Ease the pressure on energy consumption.
  
  
• Contribute to the task "carbon peak" in steel industry.
  
  

If crude steel output can touch no more than 1.065 bn t as seen in CY'20 for three years in a row, there would be a huge increase in energy-efficiency and reduced rate of energy consumption. Carbon emission in the steel industry will be no more than the levels seen in CY'20 even if production cuts are not in force subsequently.