Chinese Steel Mills Further Scale Down Production

Chinese steel producers are further scaling down production in an attempt to cope with tough market conditions and warehouses at bursting point, as the novel coronavirus (COVID-19) outbreak continues to impact steel consumption, Mysteel Global has learned. A quick study on Wednesday determined that mills in the Northwest, North, Southwest and East China were cutting back on output.

"There is an imminent need for steel producers to act with self-discipline and reduce production," Li Xinchuang, president of China Metallurgical Industry Planning and Research Institute, stated in an online presentation on Wednesday.

Members of the Shaan-Jin-Gan-Chuan Steel Forum, a union co-formed by steel producers in Northwest China's Shaanxi and Gansu, North China's Shanxi and Southwest China's Sichuan, had decided to cut a further 35% off their steel output from mid-February from the 30% reduction implemented since early February. The additional measure represents an output reduction of 64,700 MT/day from the previous 55,000 MT/y, Mysteel Global learnt from the forum.

Yongfeng Group and Shiheng Special Steel Group, both major common carbon steel producers in East China's Shandong province, also announced they were voluntarily reducing production by over 30%, to "ease greater inventory pressure in later days", their company announcements showed on February 24.

With the hit of COVID-19, Chinese steel consumption has been stalled for over a month since late January - though recently, steel usage has shown faint signs of recovery - and steel stocks have climbed to record highs, with many warehouses in China stocked to the rafters.

"As big as China is, there is no place to stock one extra tonne of steel products," Song Lei, CEO of CHINATSI, a Chinese steel information portal, said when describing the current situation.

Mysteel's latest survey showed that as of February 19, steel stocks at 184 Chinese mills refreshed a record high of 12.85 MnT after surging 11.7% on week. The inventories at retail warehouses also hit a near seven-year high of 21.4 MnT as of February 20, as reported.

The towering stocks of steel mean that a huge part of mills' capital is occupied, threatening smooth cash flow, observed China Baowu Steel Group, China's top steelmaker.

Including Li and Song, many steel market pundits are calling for domestic steel producers to jointly scale down production to better navigate through these difficult times.

"The crisis that China's steel industry is facing now will have to be solved by cutting steel production largely. The earlier you cut output, the more initiatives you will win. Voluntarily cutting output (now) will cost you less than when you are forced to," Song said in his recent report.

"For now, such voluntary production reduction is generally confined to certain mills in some regions. Many mills are still reluctant to scale down," observed Xu Xiangchun, a senior industry expert based in Beijing, lamenting the absence of a nationwide push. Xu predicted that a turning point in the levels of domestic steel stocks may be reached in mid-March, should the COVID-19 contagion be fully under control by then.

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.