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China wants to curb steel production. Some say it’s virtually impossible

On October 12, 2020, workers will sample molten metal during a government-sponsored tour at the Tiangong International plant, a manufacturer of high-quality steel and tools in Zhenjiang, Jiangsu Province, eastern China.

Hector Retamaru | AFP | Getty Images

China wants to reduce steel production this year, which can be difficult.

According to Wood Mackenzie’s memo, in the first half of 2021, Chinese steel mills mass-produced about 12% more crude steel compared to the same period in 2020.

China The monthly record for steel in May was 99.45 million tonnes, but fell to 93.88 million tonnes in June. Reuters reported.

The steel sector is one of the largest pollutants in China, producing about 10% to 20% of China’s carbon emissions. Beijing is targeting the industry as part of a bid to reduce carbon emissions and reach net zero by 2060.

To lower it, you need to actually hit the brakes.

Paul Bartholomew

Lead Metal Analyst, S & P Global Platts

Production is likely to decline in the second half, according to analysts, but it may be difficult to fall below 2020 levels.

Paul Bartholomew, a steel analyst at S & P Global Platts, told CNBC by email Thursday. ..

Industry insiders who spoke at the Virtual Forum as part of Singapore International Iron Week in July had a similar discussion.

Rohan Kendal, head of iron ore research at Wood Mackenzie, told the Singapore Iron Ore Forum that it is “virtually impossible” for China to reduce its steel production this year compared to last year.

Other than following “there is no choice”?

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Zhuang Bin Jun, a former business development group manager at Fortescue Metals, said it is very difficult for authorities to control production given the large number of private and state-owned factories in China.

Domestic steel demand is very strong, and iron ore forum Zhuang said that if steel production is as profitable as it was in the first half, it is unlikely that production will decline in the coming months. ..

High steel prices and high steel production are really just a sign of high steel demand.

Rohan Kendall

Wood Mackenzie, Head of Iron Ore Research

Bartholomew of S & P Globalplatz said trying to limit steel production would push prices up and encourage factories unaffected by government regulations to produce more.

“Importantly, steel mills are making decent money for most of the year … and emotions are generally vibrant, so the industry wants to take advantage of the benefits offered by producing a lot of steel. You would think, “he said.

Demand outlook

According to Bartholomew, the best way to reduce production is to focus on reducing demand, but such policies can undermine the economy.

Wood Mackenzie’s Kendal said authorities could crack down on real estate or construction sectors that use a lot of steel to lower supply and price.

“Soaring steel prices and soaring steel production are really just signs of high steel demand,” he said.

Other market watchers predict that demand will decline, but they do not believe that decline is sufficient to limit production at levels below 2020.

Eric Hedborg, chief analyst at commodity intelligence firm CRU, said steel demand could decline in the second half of the year, partly due to the weakening construction sector.

In addition, demand for steel-containing consumer goods from China has now slowed after remaining high for the past 12 months, he said at the Iron Ore Forum.

“Undoubtedly, this will reduce China’s steel demand,” he said.

“We are skeptical,” Hedborg said, as to whether demand will decline below 2020 levels of steel production.

China wants to curb steel production. Some say it’s virtually impossible

Source link China wants to curb steel production. Some say it’s virtually impossible

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