China's flat control policy, weak margins to impact steel output in Nov-Dec'23

• Daily crude steel output in late October drops 6% m-o-m
  
  
• BF operating rate falls further in November
  
  
• Margin squeeze eases slightly but mills still sustaining losses
  
  
• Some mills suspend production until next year
  
  

As per data from the China Iron and Steel Association (CISA), the average daily output of crude steel of major affiliated steel companies in late October 2023 was 1.92 million tonnes (mnt), a decrease of 5.65% m-o-m and down by 5.19% y-o-y. The average daily output of key steel companies during the period stood at 2.06 mnt, an increase of 2.10% m-o-m but a decline of 2.01% y-o-y.

The average daily output of pig iron in late October stood at 1.81 mnt, a decrease of 4.03% m-o-m and down 4.19% y-o-y.

September production

Judging from the average daily output of large and mid-sized steel companies, the release of production capacity has slowed down for four consecutive months. CISA data shows that daily pig iron output of large and mid-sized companies in September was 1.87 mnt, down 3.3% m-o-m and a decline of 0.8% y-o-y.

The daily output of crude steel was 2.015 mnt, which marked a decline of 4.9% m-o-m and also fell by 2.5% y-o-y. Daily finished steel output stood at 2.03 mnt, a decrease of 3.9% m-o-m and down 1% y-o-y.

Falling BF operating rate

In view of the current blast furnace (BF) operating rates, the capacity utilisation of steel companies has shown a trend of high fluctuation as well as decline. The BF operating rate of major steel companies in the first week of November was 77.9%, 1 percentage point lower than the average in October.

The daily average hot metal output of 201 companies scattered across the country stood at 2.25 mnt, a decrease of 30,000 t compared with the same period last month, and a lower by 31,000 t compared with the monthly average in October. The operating rate vacillated throughout October and began to decline rapidly in November.

Margins recover slightly

Steel mills sustained substantial losses throughout October. This was mainly due to the relatively strong prices of key raw materials. Prices of iron ore and scrap steel trended down first and then rose, while coke prices showed a steady downward trend even as steel prices rebounded.

In November, steel mills are still in a loss-making situation, but the extent of margin squeeze has narrowed. As of 3 November, producers of the two major steel products - rebar and HRC - were still shown to be making losses. While rebar producers reported a loss exceeding RMB 50/t, coil manufacturers' loss exceeded RMB 150/t.

Outlook

There are less than two months left before the end of the year. Due to the combined impact of the steel output control policy and the pressure of continued margin squeeze, a few mills in some regions have directly suspended production until next year.

It is expected that the number of mills undergoing maintenance and production cuts will continue to increase, which will cause a rapid decline in capacity on the supply side, thus helping ease the contradiction between supply and demand.