The rate of decline in steel supply in the domestic market in July may be “higher than expected,” Wang said in his latest monthly forecast, noting a sudden and sharp drop in steel supply due to restrictions imposed on steel mills in late June … especially in North China to ensure clear skies during the celebration of the centenary of the Chinese Communist Party (CCP) in Beijing, North China, July 1.
As a result of strict production restrictions centered between June 28 and July 1, pig iron production in Shanxi province in northern China will fall by 42,000 tons per day, and in Tangshan and Handan cities – two key steel production centers in Hebei province in northern China – is estimated as follows: the production of pig iron will decrease by 338,600 tons /day and 38,300 tons /day, respectively.
The aforementioned production cuts could be temporary, Wang said, but in addition, steel mills across the country are likely to further cut production this month, either because they want to or because they are forced by government directives. …
More steel mills are now cutting production rather than continuing to produce at a loss, Wang said. The latest Mysteel survey found that as of June 24, the share of profitable factories among the 247 integrated steel mills surveyed nationwide was just 74.5%, a record low since the survey began on March 1, 2018.
Integrated plants account for about 90% of China’s steel production and for the most part have lower production costs than electric arc furnace steelmakers.
At the same time, Chinese steelmakers are facing pressure from local authorities to cut steel production in line with Beijing’s wishes, Wang noted, which could lead to production cuts from July.
“Recently, the reports of some local authorities about the decline in crude steel production are becoming louder. The task is both urgent and difficult, which is why many steel mills may plan to cut production this month, ”Wang said.
Earlier this year, the central government ruled that crude steel production in 2021 should be lower than last year, but crude steel production was reported to rise 13.9% or 57.7 million tonnes in January-May. on an annualized basis to 473.1 million tons.
Wang predicted crude steel production in June could be slightly lower than last year, but steelmakers would need to cut crude steel production by 50 million tonnes to meet Beijing’s target during this half year. In other words, the monthly average for July-December should be reduced by more than 8 million tons per month, he said.
“For some factories, it is better to cut production now when they are experiencing losses or meager profits than to cut it in the coming months, when demand and profits are likely to be better,” Wang said. If this argument is accepted, an additional 5-10 million tonnes of production will likely be cut this month. He noted that some major steelmakers in Jiangsu province in eastern China have already cut their planned shipments to the market in early July.
On the demand side, by contrast, Wang predicts that steel demand will slightly improve this month, thanks to increased liquidity and the resumption of construction work following the end of CPC centenary celebrations. Steel demand will also be supported by continued strong export demand, both direct and indirect steel exports.
Lack of liquidity led to a decrease in demand for steel in late May and June, but Wang said the situation will improve in July.
On the one hand, local governments have been slow to issue bonds for some infrastructure projects. According to Wang, as of May, issuing government bonds for special use (mainly in projects related to people’s livelihoods) was only 16% of their annual quota, which is much lower than 40% in 2019 and 57%. in 2020.
On the other hand, the controls that many companies have imposed on corporate budgets – to improve their first half balance sheets for their semi-annual reports – could weaken with the start of a new business half in July. This, in turn, could lead to increased purchases of steel products by enterprises, according to Wang’s report.
According to Wang, the UK and EU PMIs remain strong and will continue to support direct and indirect steel exports from China in July.