China’s top steel production hub Hebei to cut crude steel output by over 20% in this heating season

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North China’s Hebei province, the country’s top steel production hub, said steelmakers will be required to implement off-peak production in the heating season from November 15 this year to March 15 next year, which will cut Hebei’s crude steel output in the four months by more than 20% from a year earlier.

The measures will be implemented in two phases – the first phase of November 15 – December 31 this year and the second phase of January 1 to March 15 next year, according to a notice released by the province’s industry regulator and environment authority on Monday.

The plan will cover nine cities in the province, including Shijiazhuang, Tangshan, Handan and Xingtai.

In the first phase, steelmakers will be required to achieve the target of maintaining this year’s crude steel output no higher than last year, and that means they will cut output by 10.75% from a year earlier. In the second phase, steel mills will cut crude steel output by 30%. Combined, they will cut crude steel production by about 18.34 million tonnes or by 22.8% in the heating season from a year earlier.

Hebei province churned out 250 million tonnes of crude steel in 2020, accounting for 23.5% of China’s total crude steel output, making it the country’s top steel production hub.

Unlike previous years when output cut was conducted based on production capacity, this year’s measures will be implemented based on actual crude steel output. “Implementations based on production capacity leaves some obscure room and implementations based on actual output means it will be stricter this year,” said Xu Xiangchun, information director with iron and steel industry consultancy Mysteel.

In terms of the plan’s impact on the steel market, Xu said that it will depend on how steel demand recovers in the first quarter next year and inventories by then, he said.

Since mid-October, steel prices have been falling mainly due to slowing economic growth and weakening steel demand. On November 15, China’s most-traded construction steel rebar futures contract on the Shanghai Futures Exchange, for January delivery, closed at 4,138 yuan per tonne, sliding by nearly 30% from a high of 5,808 yuan per tonne set on October 11.

Hebei’s latest measures come as a follow-up of the production-cut plan released by Beijing earlier this year. On September 30, the Ministry of Industry and Information Technology and the Ministry of Ecology and Environment issued a notice about implementing off-peak production at steelmakers in the Beijing-Tianjin-Hebei region and the neighbouring areas in this year’s heating season.

The plan will cover 35 cities including Beijing, Tianjin and cities in Hebei, Shanxi, Shandong and Henan.

The notice required steel mills in the cities to cut crude steel output in November 15 – December 31 to ensure the full-year target of output cut is met and required them to cut output by 30% in in January 1 – March 15 next year.

According to Xu’s calculations, that means total steel output in the region will be reduced by about 30 million tonnes from a year earlier.

In addition, Hebei authorities said in the latest notice that it will avoid a one-size-fit-all approach. For instance, companies that get Grade A in the environment protection review and have completed technological upgrading to achieve low emissions, will be allowed to make their own production-cut measures, as long as they promise to ensure output no higher than a year earlier, according to the notice.

Starting from December this year, authorities in difference cities will be required to report the progress on 10th of each month, according to the notice.