China’s steel production curb is expected to continue to the first quarter of 2022 as Beijing seeks to control pollution ahead of the Winter Olympics and due to the improving but still ongoing power shortage.
The pollution control and power shortage will create a favourable supply and demand dynamic to support the margin for Chinese steel companies, according to CreditSights, a Fitch Group’s unit, in its note on Monday.
China’s monthly crude steel production was down 23% year-on-year in October and the capacity utilisation rate of China’s steel mills dropped to a record low in November.
Based on CreditSights’s observation, over 50% of blast oxygen furnaces in the Tangshan region – a major steel production base in the Beijing-Tianjin-Hebei capital region – remain shut. The region accounts for more than 20% of China’s steel output.
“Even small steel mills, which tend to rapidly increase output during price up cycles have not managed to ramp up production owing to the strong enforcement of production curbs by the local governments,” it said.
Moreover, China has committed to cut energy consumption per unit of GDP by 13.5% and carbon emission by 18% by 2025.