CISA vice chair calls steel mills to produce on demand-basis

Chinese steel majors should take the lead to control their production pace based on actual market demand and enhance self-discipline in this aspect so as to achieve high-quality development in the country's steel industry, according to a new release on the website of the China Iron and Steel Association (CISA) on 10 June.

Luo Tiejun, vice chairman of the association, emphasised at a meeting held on 6 June that achieving a dynamic balance between supply and demand is crucial for the high-quality development of China's steel industry, pointing out that the main concerns for China's steel industry at the moment are strong supply and weakening demand.

Steel demand is likely to decline this year, but just slightly, the CISA predicted. The latest forecast of the World Steel Association (WSA) on 9 April also showed that China's steel demand for 2024 would be at similar levels to 2023.

On the other hand, many domestic steel mills are still attempting to dilute fixed costs of production by ramping up output whenever steel prices show signs of improving, Luo said. However, this strategy has put the mills in a dilemma now as their hard-won profits are soon eroded by falling steel prices and rising prices of raw materials, he pointed out.

"The key challenge for China's steel industry is how to cater to slowing demand at high production capacity," Luo concluded.

China's central government has required crude steel output control in recent years, but "these are only short-term policies," Luo commented. In the long run, it is necessary to establish new market-oriented coordination mechanisms that can regulate steel output through constraints on energy consumption and carbon emissions, industry self-discipline, and effective government supervision, he added.

"It is now widely acknowledged by the industry that China's steel demand has peaked, we hope domestic steel mills could develop business strategies to cope with falling demand over the next 1-2 years," Luo stated.

Meanwhile, Luo warned that China's steel industry should find a balance between home and overseas markets. The domestic market is the primary consumer market for China's steel products, while exports are an effective supplement to the home market to ensure the orderly release of steel capacity and maintain supply-demand balance, he explained.

Over 2018-2021, China's steel exports stayed between 50-70 million tonnes (mnt) per year. The export volume increased since 2022 with Chinese steel products' better performance in overseas markets, and the volume exceeded 90 mnt in 2023, Luo noted.

Given the high dependence on iron ore imports and the need to reduce energy consumption and carbon emissions, huge quantities of steel exports are neither in line with the country's national policy directions nor conducive to the high-quality development of the steel industry.

Besides, China has faced rising trade frictions in the global steel market since last year, due to its increased exports of low value-added steel products which caused concerns among importing countries, according to the release.

On 29 May, China's State Council issued an action plan for energy conservation and carbon emission reduction during 2024-2025. The plan strengthens control on steel capacity and output, vigorously promotes high value-added steel products such as high-performance special steel, and strictly controls the exports of low value-added products, reflecting Beijing's policy guidance for the country's steel industry.

CISA has recommended resuming tax rebates on exports of high-end steel products to encourage the exports of these products, Luo stated.

Note: This article has been written in accordance with an article exchange agreement between MySteel Global and BigMint.