China's new policy may curb steel output by 28 mn t in Q1'22
China’s General Office of the Ministry of Industry and the Information Technology General Office of the Ministry of Ecology and Environment have jointly issued a no...
China's General Office of the Ministry of Industry and the Information Technology General Office of the Ministry of Ecology and Environment have jointly issued a notice unveiling staggered or phased production cut schedules specifically in the iron and steel industry for the upcoming heating season of 2021-2022 in Beijing-Tianjin-Hebei and surrounding areas.
The policy, as per SteelMint's estimates, can reduce crude steel output in the regions mentioned by almost 28 million tonnes over the first quarter of CY'22.
The implementation period of these staggered cuts will be from 15 Nov'21 till 15 Mar'22 for areas including Beijing, Tianjin, key cities in Hebei, Shanxi and Henan provinces (briefly referred to as "2+26" cities).
This work will be undertaken in two phases. The first one is from 15 Nov-31 Dec'21 whereby the crude steel output reduction task must be completed.
The second phase starts from 1 Jan'22 till 15 Mar'22, whereby the focus will be on reduced emission for addressing air pollution during the winter heating season.
The notice says the staggered or phased production cuts amongst steel mills shall not be less than 30% of the crude steel output of the same period last year.
Previously such similar notices had been issued not only touching upon the steel industry but other polluting industries that needed to address the air quality.
This time, however, a source in China told SteelMint, "The policy is especially issued at the ministry level and is targeted at the steel industry which is self-evident that the government is serious about the crude steel output reduction and determined to implement air pollution control measures to improve air quality."
Moreover, this time more cities have been added, such as Chengde, Zhangjiakou, Qinghuangdao, Rizhao, Taian etc which will have to follow restrictions to lessen air pollution ahead of the Winter Olympics.
Impact on crude steel supply
According to the data, crude steel output in the five provinces as mentioned in the notice (Beijing, Tianjin, Hebei, Shanxi and Henan) was 112.85 million tonnes (mn t) during Q1'21, and the estimate for crude steel output from 1 Jan-15 Mar'21 is around 93.16 mn t. If all the areas mentioned implement staggered steel production curbs at 30%, then the output of crude steel during this period will be cut by 27.95 mn t, which will bring about notable impact on steel supply in the surrounding areas or even on a national scale.
Impact on iron ore
This reduction will also curtail demand for iron ore. If ferrous scrap usage is calculated at 21% for producing 1 tonne of steel and the dependency rate on imported iron ore is 82.3%, then iron ore imports will be reduced by around 29 mn t. (27.95 mn t*0.79*1.6*0.823)
Overall, the execution of such a policy will restrain steel production around the areas mentioned above during the heating season, which will help support steel prices too.
On the other hand, it will also reduce iron ore demand which can facilitate prices of the steel-making raw material to come down to reasonable levels.