China wants to curb steel production. Some people say this is “almost impossible”

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On October 12, 2020, at a Tiangong International factory that produces high-quality steel and tools in Zhenjiang, Jiangsu Province, eastern China, a worker took a sample of molten metal during a government-organized visit.

Hector Retamar | AFP | Getty Images

China hopes to reduce steel production this year, but this may be difficult.

According to a report by Wood Mackenzie, compared with the same period in 2020, the crude steel output of Chinese steel mills increased by nearly 12% in the first half of 2021.

China produced one In May, the monthly record of steel was 99.45 million tons, but in June it dropped to 93.88 million tons. Reuters reported.

The steel industry is one of China’s largest pollution sources, and its carbon emissions account for about 10% to 20% of China’s carbon emissions. Beijing has made this industry part of its goal of reducing carbon emissions and achieving net zero emissions by 2060.

This will involve a real slam on the brakes to be lowered.

Paul Bartholomew

Chief Metal Analyst, Standard & Poor’s Global Platts Energy Information

Analysts said that production may fall in the second half of this year, but bringing it below the 2020 level may be a challenge.

S&P Global Platts Chief Steel Analyst Paul Bartholomew told CNBC in an email on Thursday: “This will require real brakes to be brought down. We think this year’s steel production will increase by 8-9%. about.” .

As part of the Singapore International Ferrous Week in July, industry insiders who spoke at the virtual forum also made similar arguments.

Rohan Kendall, head of iron ore research at Wood Mackenzie, said at the Singapore Iron Ore Forum that compared with last year, China’s steel production this year is “nearly impossible”.

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Fortescue Metals’ former business development manager Zhuang Binjun said that given the number of private and state-owned steel mills in China, it is difficult for the authorities to control production.

National steel demand is very strong. If the profitability of steel production is as good as in the first half of the year, it is unlikely that production will fall in the next few months, Zhuang said at the Iron Ore Forum.

High steel prices and high steel output are actually just a symptom of high steel demand.

Rohan Kendall

Wood Mackenzie Head of Iron Ore Research

Bartholomew of S&P Global Platts said that attempts to limit steel production will push up prices, and steel mills that are not affected by government restrictions will be encouraged to produce more.

“The important thing is that steel mills have made considerable money for most of this year… and market sentiment has generally remained active, so the industry will want to take advantage of any profits provided by producing large amounts of steel,” he said.

Demand outlook

Bartholomew said that the best way to reduce production is to focus on reducing demand, although such policies may eventually weaken the economy.

Kendall of Wood Mackenzie said the authorities may crack down on real estate or construction industries that use large amounts of steel to cool demand and prices.

“High steel prices and high steel output are actually just a symptom of high steel demand,” he said.

Other market observers predict a decline in demand, but doubt whether the decline is sufficient to limit production to 2020 or lower.

Erik Hedborg, chief analyst at the commodity intelligence company CRU, said that steel demand may decline in the second half of this year, partly because the construction industry has been weakening.

In addition, he stated at the Iron Ore Forum that after maintaining a high level in the past 12 months, China’s demand for steel-containing consumer products is now slowing.

“Of course, we will see a drop in China’s steel demand as a result,” he said.

As for whether demand will drop enough to cause steel production to fall below 2020 levels, Heidelberg said: “We are skeptical.”

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