Metal Movers: China flattens its full-year steel output

Author Argus

China’s October steel output fell to its lowest level ever since December 2017. This episode of Metal Movers focuses on China’s next steps to reach its output and emissions targets.

Join Chris Newman, Senior Editor – Ferrous Markets, and Sharon Liao, Lead Analyst – Asia Steel, as they discuss the latest numbers for China’s steel production, including seasonal restrictions, export numbers, domestic demand and the impact of Beijing’s 2022 Winter Olympics.

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Transcript

Chris: Hello and welcome to this podcast brought to you by Argus Media. We're a leading independent provider of energy and commodity pricing information. In this episode of "Metal Movers," we're going to talk about the latest in China's steel markets. I'm Chris Newman. I'm a senior editor of Ferrous Markets here in Singapore. And Sharon Liao, our lead analyst for Asia steel, is joining me. She's based in Shanghai. Sharon, it's always nice to speak with you. Let's start off with... There was some data out this week on China's output and downstream demand that was interesting. Tell us what's the latest there.

Sharon: Okay. From the NBS data released this week, China's October steel output fell to the lowest level at 72 million tonnes since December 2017, down by 3% over September and by 23% a year. We know that China produced 1 billion tonnes crude steel in 2020, which means China needs to limit crude steel to 188 million tonnes for the remaining 2 months of this year to achieve its full-year target of zero growth for 2021. Yeah, that's a general idea.

Chris: It's quite the change from earlier on the year when we were reaching, I think, an all-time record in May. A lot of us were surprised by the amount of cuts. So, it looks like China's on pace to zero out their output growth compared with 2020.

Sharon: Yeah, yeah. So, I think the market will believe that China will achieve its target of this year. Yeah.

Chris: What are we seeing on the downstream demand side? In real estate, the property has been weaker. What did we learn this week?

Sharon: Oh, yeah, it seems very weak for the real estate. We can also see from the NBS data that China's Januaryto October real estate sector investment rose by 7% a year and by 14% from the same period in 2019. But the investment in the single month of October fell by 5% a year. It's the second consecutive decrease and only declined since the pandemic began.

The January to October new project stats by area fell by 8% from a year earlier with October down by 33% a year. January to October real estate sales by area rose by 7% from a year earlier while the October single month sales by area fell by 22% a year. January to October sales rose by 7% from the same period in 2019. We can see that the data is not so good for October, a single month. Yeah.

Chris: So, no bottom yet in the weakening demand. Let's turn our attention to the winter restrictions that we're entering into... We've had the autumn restrictions. Second phase of restrictions in the North China [inaudible 00:03:25] affected by these winter plans begin December 3rd. Give us an update on the winter plans for, you know, reducing the pollution of mills.

Sharon: Yes, actually early this week the Hebei Provincial Government published local production restriction plan for the heating season. It requested its steel mills to complete 2021 steel production cuts by December 31st and cut that list 30% output over January 1st to March 15th from this year to reduce air pollution. The plan actually was within expectation as Tangxian has already been in strict output controls. We know that steel output cut this year has been different from last year in the sense that we have seen cuts being implemented throughout the year at Tangxian.

The autumn-winter cuts have also been extended beyond Beijing-Tianjin and the surrounding 26 cities. Well, in previous years, we know that this was the main area the steel output cuts were rolled out. This year, additional areas include north Hebei, and Xiangxi, east and south Shandong, and some parts in south Henan. And also the pollution controls around the Beijing Winter Olympics in February will add to already strict winter provision controls.

Chris: Okay So, would you expect accelerated cuts or pretty much the same level that we have now? Because I believe the plan is on average overall 30% cut production by mills, you know, the TRA-type mills don't have to cut but the other ones do. But we've already seen provinces play catch-up here at the end of the year. So, like, Shandong was down 30% in September. So, should we see an acceleration of cuts or about the same that we're seeing now?

Sharon: Oh, yeah, I think from the data now, we see that China can complete its target of zero growth for this year's crude steel output compared with last year. So, it's already there and we can see that, in the same time, the domestic steel demand is also quite weak. So, it can be balanced for each of other. Yeah. And in the following two months, we also hear many maintenance from steel mills, especially in North China. So winter started earlier this year. So, yes, we...

Chris: Yeah, cold winter.

Sharon: Yeah, yeah.

Chris: And the Beijing Winter Olympics coming up in February, so...

Sharon: Yeah, yeah.

Chris: Blue Sky Policy will definitely...no incentive to start back early.

Sharon: Mm-hmm. Yeah. So, production control systems to make a target of neutral carbon emission.

Chris: All right. So, let's turn our attention to the seaborne market. That's where we might see China shift the sales focus to to release some of this excess supply that it's seeing. What are you seeing in the seaborne spot markets?

Sharon: Yeah, yeah. We can say that China's steel exports for common carbon steel products is quite weak during the previous two months. And also the NBS data shows that...the customs data shows that Chinese October steel exports decreased by 9% over September to 4.5 million tonne. That rose by 11% a year. And January to October exports rose by 30% to 58 million tonne a year. Yeah, from the contacts we contacted daily, that many mills do not have enough export allocation during the previous month as they were required not to export steel higher than last year. So, the export allocation is quite limited.

And also previous months, we know that Chinese steel price is quite high compared with seaborne markets. Yes, so that's also another reason why exports decreased. But recently with the Chinese domestic prices dropping sharply, and we heard from several large Chinese mills that they are allowed to receive export orders for December and January shipments to ease the oversupply in domestic market amid weak domestic demand.

But all those orders should be counted as exports allocation for 2022, and the whole year exports should not exceed this year's level. So, that was deemed to be one of the reasons why more mills reemerged in recent seaborne markets. And the possibility for Chinese steel export tax should be slim temporarily at least before February 2022. Yeah.

Chris: Okay. So still some risk for taxes later. The policy still remains. China is not promoting exports but allowing at least.

Sharon: Mm-hmm.

Chris: I think we have time for one more question. What's the general mood of the market? What are expectations running at for, you know, into winter, head out and into, you know, when construction demand returns in March?

Sharon: Yeah, right now, the general steel sentiment is still very bearish towards the following two months, so even towards the first quarter of next year. The real estate sector is the largest driver of China's steel demand at about 40% of the consumption. But the weakness in the sector has threatened steel demand, and Beijing has signaled support after real estate investments failed for the first time since early 2020. And real estate developer like Evergrande began to miss debt payments.

But the [inaudible 00:10:31] for the commercial steel to stabilize the real estate market and its selling prices, maybe there will be some minor flexible policies to improve mortgage price that most market participants do not expect any further stimulus policies at least in the first quarter of next year or any more new projects for the infrastructure except for the special bonds. There's some talks in the market that there may be some new special bonds to be released before end of this month, so that may temporarily support some of the market sentiment. But everyone don't know what will happen, yeah, for the policy or the international economy situation. So, they're still quite cautious. Yeah.

Chris: Great. Well, thanks for the context and, you know, possibilities of some of the bonds coming in. I haven't heard that. We'll be watching that closely. And that does it for us. If you enjoyed this podcast, please tune into other episodes to learn more about the metals markets. For more information on China's steel, please visit argusmedia.com. Thanks a lot.

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