Chinese steel mills have decided to cut output and in some cases have commenced seasonal maintenance earlier rather than later as soaring prices of metallurgical coal are hurting steel companies’ bottom lines.
China previously pledged to curb steel overcapacity, but there have been mixed indications into whether or not the country was on track to meet its steel output cut goals for the year. But, now the jump in coking coal prices may result in the country’s steel capacity shrinking.
Prices for coking coal, a steelmaking ingredient that usually accounts for about 20% of steel production costs, have surged this year as Beijing has clamped down on its coal miners production in order to trim pollution. The jump in coal has led Chinese steel producers to request intervention from Beijing, but so far coking coal prices have remained high, denting steel companies’ margins and now they are cutting back steel output.
According to data from custeel.com, Chinese steel producing blast furnaces are operating at their lowest rate in about four months, with furnaces across China running about 86%. This is a stark contrast to earlier in the year when robust steel demand prompted mills to operate at near full capacity. While a slowdown in steel production is typical around December due to a seasonal slowdown in demand, this year low raw material availability and high coking coal prices are causing steel producers to wind down earlier than usual, according to Steel analysts as cited by Reuters.
While the reduced production may be met with reduced demand during the winter slowdown; unless something is done about the coking coal price and availability, the resulting reduced production of steel could provide a great deal of upward support come next spring when construction activity picks back up in China.
In other steel market news, according to The Wall Street Journal, the US Department of Commerce will soon launch a formal investigation into whether Chinese steel companies are shipping steel through Vietnam to avoid US import tariffs. The decision to investigate came after US steelmakers in September noticed a big uptick in steel imports from Vietnam. US steelmakers believe that China could be circumventing duties by importing steel products into China for some further refinement, and then importing that steel to the US, thereby skirting duties. This follows the US’s implementation on some very stiff tariffs on Chinese steel imports.
Source:Economic Calender.com