Draft policy lets Chinese cities set winter steel cuts

The Chinese government will stick to last year's policy of letting cities tailor their own steel production restrictions to control emissions during the winter heating season of October 2019-March 2020. This may not lead to a significant drop in winter output as a slowing economy may prompt cities to be more relaxed about enforcing output cuts.

But enforcement of restrictions could be stricter than last year with pollution projected to worsen this winter and Beijing determined to clean up air quality. Production restrictions from November 2018-March 2019 were largely ineffective with a 42mn t increase in crude steel output compared with the previous year.

A draft policy was circulated on the winter restrictions that will be enforced in 28 north, east and central China cities in key producing provinces such as Hebei, Shandong and Tianjin, where such restrictions have been a fixture since the winter of 2017.

Market participants are uncertain of the impact of the decision until the policy is formally announced, with key cities such as Tangshan and Handan announcing their specific production curb schedules. The most immediate concern to iron ore markets are curbs on steel and sintering output ahead of the 1-7 October national day holidays.

Production restrictions in steel sector are likely to be imposed on the basis of emissions performance, with steel mills graded into three categories. Mills that have met ultra-low emissions regulations are typically allowed to operate at full capacity unless the pollution levels reach emergency levels. Around 100mn t/yr of Hebei steel capacity is expected to meet the ultra-low emissions regulations this year, said the draft policy.