China is set to release a plan that requires domestic steelmakers, who contribute more than half of global production, to keep this year’s output from exceeding 2022 levels, in an effort to grapple with a tepid post-pandemic recovery.
(Bloomberg) — China is set to release a plan that requires domestic steelmakers, who contribute more than half of global production, to keep this year’s output from exceeding 2022 levels, in an effort to grapple with a tepid post-pandemic recovery.
The move, expected by the end of this month, is a fresh reminder of official concerns over lukewarm demand, but stops short of demanding harsh cuts, according to people familiar with the situation, who asked not to be identified as they aren’t authorized to speak publicly. They added the compromise addressed differing views over the economic outlook for the year.
The cap may help prices, by reducing oversupply, but it will be unwelcome news for the industry, putting more pressure on mills already suffering from low profits and dealing with the impact of last year’s production disruptions. China is the world’s biggest steel producer and consumer, but output has been declining each year since hitting a record in 2020.
It also goes some way to addressing Beijing’s green ambitions. Struggling to reduce carbon emissions and to meet climate commitments, the government has long had the heavily polluting steel sector in its sights. The industry accounts for about 15% of national emissions, second only to electricity generation. Last year, the pandemic hit on the economy and a government’s crackdown on the property market also weighed on production.
The National Development and Reform Commission, China’s economic planning agency, did not respond to a request seeking comment.
Hopes of a robust recovery had prompted mills to increase production as the country reopened, and as China entered its traditional peak construction period. However, demand hasn’t picked up at expected scale. This week, Mysteel reported slow trading had spurred some 11 Chinese mills to lower prices of construction-related steel.
The planned cap on production is open to review in the second half of the year as market conditions change, the people said. They added that while the central government may not require steel mills to reduce production by a certain percentage this year, a detailed target on per-ton emissions will remain in place as a regulating mechanism.
Chinese steel production climbed 5.6% in the first two months of this year to 169 million tons.
Steel mills in China have been struggling for months with excess supply and increases in the prices of raw materials such as iron ore. It’s prompted a sweeping campaign by the government to tame those costs, as Beijing wants to ensure that Chinese mills benefit from a stronger economy — rather than allowing foreign suppliers to claim the bulk of the profits.
A recovery is still on the horizon. A stronger-than-expected expansion in China’s credit last month signals government stimulus is working to fuel investment and the housing market is on the mend, Bloomberg economist Eric Zhu has noted. Recent data also show improved appetite for mortgages — another sign of life for the property market, the largest user of the steel products in China.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.