Major Steel Manufacturer Anticipates Beijing's 2023 Steel Production Ceiling

China is set to maintain its cap on steel production throughout this year, as confirmed by the general manager of state-owned Baosteel, 600019.SS, in an announcement on Thursday. This underscores the continuation of a two-year-old policy aimed at curbing carbon emissions from steel mills notorious for their pollution.

While the decision to sustain the cap on steel output this year has not been officially communicated by Beijing, this situation has prompted speculation about whether the policy might be revised to bolster the struggling economy.

During a lively discussion on their first-half financial results, Wu Xiaodi of Baoshan Iron & Steel shared that China, a global leader in steel manufacturing, remains committed to upholding the production cap. Wu emphasized, "The policy to maintain flat steel output for the year is in effect, ensuring that this year's production remains within the confines of last year's levels."

Despite the delay compared to previous years, a number of analysts have recently conveyed their belief that the cap's enforcement will come into play before the close of the year. Offering their insights, Citibank analysts projected, "We anticipate the enforcement of production control policies across Chinese provinces to occur in the latter half of 2023, providing favorable support to steel margins," as outlined in a note on Wednesday.

Still, the exact timing and strictness of the production cap's implementation remain uncertain. A Chinese expert, who wished to remain anonymous as they were not authorized to speak to the media, shared their thoughts: "The potential initiation of a steel output reduction could potentially take effect as early as October or November. Once enforced, a notable drop in production volumes is likely to swiftly follow."

Considering the year-over-year rise in steel production during the initial seven months of this year, Wu projected that China must aim to decrease production by approximately 30 to 40 million metric tons. However, it wasn't clarified whether this reduction pertains to a comparison with the first half of this year or the latter half of 2022.

Amidst challenging market dynamics including sluggish demand and elevated raw material expenses, Baosteel, China's premier publicly-listed steelmaker and a subsidiary of the state-owned China Baowu Group, reported a 41.6% dip in net profit for the first half of the year.

Addressing the same audience, Baosteel Chairman Zou Jixin expressed his views on the possibility of a robust stimulus policy being introduced in China: "The foreseeable future is marked by a low likelihood of a strong stimulus policy being unveiled. Anticipating continued stronger performance for flat steel products in the latter half of the year, Zou attributed this to the healthier demand from the manufacturing sector as compared to the construction industry."

Furthermore, Baosteel is geared up to enhance its global presence, targeting a steel products export volume of 6 million tons for 2023, a notable increase from the nearly 4 million tons recorded a year prior. The company's efforts have already yielded impressive results, as export orders for the first half surged by 27% compared to the previous year, amounting to a total of 2.99 million tons.

Source : Reuters (Reporting by Amy Lv and Dominique Patton)