Some local governments released plans to lower crude steel output, national-level plan expected in Q3

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Some local governments have released the plan for cutting crude steel output and industry insiders say the central government have drafted national-level policy measures which are expected to be officially introduced in the third quarter of the year.

Local government of northwestern China’s Gansu province issued a notice on June 28 requiring local steelmakers to maintain their crude steel output in 2021 no higher than the output a year earlier.

One day later, authorities in eastern China’s Anhui province held a meeting urging the local steelmaking sector to reduce crude output and make sure the output this year will not be higher than 2020.

Notable, the notices of the two local governments both mentioned that the central government has drafted national-level policy measures to cut crude steel output this year, without specifying the details of the notice.

Huabao Securities said in a note dated July 2 that Beijing has issued national-level policy to cut crude steel output and local governments are responsible for implementation of the measures. It noted that the policy expected to be officially announced in the third quarter this year.

In April and May, the National Development and Reform Commission (NDRC), China’s top economic planner that takes a leading role in the task of cutting steel output, issued several statements pledging to take a market-oriented approach to make sure China’s crude steel output decline year on year in 2021, with focus on reducing output at low-performing, high energy-consuming and technologically outdated mills.

During the period of April 19 – May 30, several provinces launched self-inspections over steel sector capacity and reported the results to the State Council. Since June 1, officials from the central government is conducting on-site inspections and the result will be reported to the State Council by the end of July.

The output reduction policy is said to be focused on Hebei province as well as Beijing-Tianjin-Hebei region.

An official from Hebei provincial authority of industry and information technology said that the NDRC had earlier issued a draft plan, saying that China’s steel output in 2021 should be at least 20 million tonnes lower than last year and Hebei province will account for 60 per cent of the task, or cutting steel output by 12 million tonnes. However, after steel prices surged in May, the plan was shelved, said the official.

Hebei province is China’s largest steelmaking hub, with crude steel output in the first five months reaching 103 million tonnes, rising 2.63 per cent or 2.65 million tonnes from a year ago. It’s followed by Jiangsu province, where crude steel output in the period surged 18.71 per cent year on year to 54.72 million tonnes and Shandong province, where crude steel output increased 17.74 per cent to 37.63 million tonnes.

Several industry insiders say the 20-million reduction plan for this year is a task impossible to achieve. China’s total crude steel output rose 13.9 per cent in January – May from a year earlier to 473 million tonnes. To achieve annual cut of 20 million tonnes, the country needs to reduce crude steel output by about 80 million tonnes in the second half of the year.

Analysts say steel output reduction in the second half of the year will mainly depend on two factors. On one hand, steel demand is expected to weaken in the short term and lead to lower steel output. According to consultancy Mysteel, the steel sector has entered a traditional low season with demand from the construction sector sliding significantly and planned output for early third quarter in the manufacturing sector is also expected to decrease slightly.

In addition, China could better meet its steel demand through more steel imports and lower exports. On April 28, the Ministry of Finance raised export tariffs and lowered import taxes on high energy-consuming primary steel products and meanwhile removed export rebates for some steel products, in a move to encourage steel imports and cut steel exports.