China: Jul'21 sees first y-o-y decline in crude steel output

The month of July saw the first y-o-y decline in production, which was slightly higher than the level seen in the same period in 2019, indicating that domestic steel producers have significantly reduced their capacity under the pressure of production cutbacks.

In Jul'21, crude steel output was 86.79 million tonnes (mn t), a y-o-y decrease of 8.4%. Pig iron output dropped 9% to 72.85 mn t, while finished steel output, at 111 mn t, saw a y-o-y decrease of around 7%.

The Chinese steel market remained sluggish in July, an off-season period for steel sales. But the production cuts have impacted the mills too.

Weak demand, supply weak

In August, due to the combined impact of timely adjustments in industry policies, forward-looking monetary policy adjustments, and phased stocking demand, the domestic steel market showed a trend of first falling and then rising. At the same time, due to the rapid decline in iron ore prices, the profits of the steel mills have been restored to a certain extent, which is offering them incentive to produce. But production cutback pressure still exists.

According to data from the Lange Steel Network, the operating rate of blast furnaces in 100 small and medium-sized steel enterprises across China in the first two weeks of Aug'21 was 80%, an increase of 0.4% from Jul'21.

At present, the domestic steel market is still in the transitional period between low and peak seasons. At the same time, due to the repeated outbreak of the epidemic, logistics and demand from some provinces and cities in Central and Eastern China have been significantly impacted, which has put more pressure on the already weak demand.

From the supply side standpoint, the policy of reducing output has entered the implementation stage, and overall supply side will be significantly under pressure. However, due to the rapid decline in iron ore prices, the steel mills have been able to restored their profits to a certain extent.

Outlook

According to estimates by the Lange Steel Research Center, the national daily crude steel production in August 2021 may drop to about 2.7 mn t, among which the daily crude steel production of key large and medium-sized steel companies may drop to about 2.05 mn t.