Surprising Upsurge in China's Crude Steel Production for August Sparks Speculation on Output Restrictions

China's upbeat momentum in daily crude steel production persists into mid-August, sparking discussions about the nation's ability to cap its 2023 crude steel output within the levels set in 2022, according to insights gathered from market experts as of August 23rd by S&P Global Commodity Insights.

Anticipating a shift, some prominent steel manufacturers are poised to curtail their steel production starting September, mainly driven by maintenance operations. However, projections indicate that China's overall steel output reduction for the remainder of 2023 might not be as extensive as seen in 2022. This aspect could potentially exert pressure on steel prices, as disclosed by industry insiders and trading insiders speaking with S&P Global.

Surge in Steel Production

From August 11th to 20th, China witnessed a 1% surge in both daily pig iron and crude steel output compared to early August, reaching 2.54 million metric tons and 2.984 million metric tons, according to data unveiled by the China Iron & Steel Association (CISA) on August 23rd. Averaging daily output for August 1st to 20th amounted to 2.527 million metric tons of pig iron and 2.959 million metric tons of crude steel—showing a consistent 1% increase from July averages. Impressively, these figures represent a 9.8% and 9.4% surge, respectively, compared to the same period the previous year, based on calculations by S&P Global using CISA and National Bureau of Statistics data.

Should China maintain its current crude steel output through August, calculations by S&P Global indicate that the cumulative crude steel production from January to August would reach 718.24 million metric tons, showcasing a remarkable 3.6% increase of 25.09 million metric tons compared to the previous year. Maintaining China's 2022-level crude steel output necessitates a 17% reduction from the August levels to 2.457 million metric tons between September and December.

Nevertheless, achieving such a significant output reduction within a short span could prove to be a challenging endeavor, remarked trading insiders.

Balancing Act of Steel Output

The upswing in China's steel production led to a 15% surge in finished steel inventories at CISA-monitored mills by August 20th, compared to the end of July. Remarkably, despite this surge, the inventories remained 4% lower than the preceding year.

A combination of elevated steel production, swelling inventories, and the perception of more modest steel output reductions throughout the rest of 2023 resulted in a depreciation of Chinese steel prices by Yuan 145/mt ($19.9/mt) between August 1st and August 22nd, as indicated by S&P Global's data.

Trimming Steel Output

Reports from market sources reveal that Shandong Iron & Steel, a state-owned enterprise based in eastern China, plans to engage in maintenance activities on a major blast furnace at its subsidiary Laiwu Iron & Steel during September and October. This initiative is projected to curtail pig iron output by approximately 5,000 to 6,000 metric tons per day.

Amidst ongoing discussions, rumors suggest that various other significant mills across eastern China might initiate similar blast furnace maintenance projects in September. However, local mill insiders have yet to confirm any official maintenance schedules.

Concurrently, sources within Hebei province, China's primary steelmaking hub, have disclosed as of August 23rd that no definitive timetable for steel output cuts is presently available.

A Shanghai-based trader reasoned, "It's reasonable if China's steel output reductions aren't rigorously enforced this year, considering the government's efforts to strike a balance between economic growth and steel output management."

Despite the potential impact on steel price escalation, the trader added that higher steel production would foster favorable conditions for steel exports.

Source : Platss