China may see less stringent steel output controls in 2023 even as cuts widen

China’s Hunan and Shanxi provinces recently announced steel output cut plans for 2023, and the country’s largest steelmaking hub Hebei is expected to make a similar move soon, sources told S&P Global Commodity Insights Aug. 29.

However, despite widening cuts, overall government-mandated production curbs are expected to be less stringent in 2023 than in 2022, limiting any major upside for Chinese steel prices for the rest of the year, they said.

Central China’s Hunan and northern China’s Shanxi plan to reduce their crude steel output in 2023 by around 1.9 million mt and 3 million-4 million mt, respectively, from 2022 levels, sources said.

Hunan and Shanxi produced 13.21 million mt and 34.51 million mt of crude steel output over January-June, both down by 3% on the year, respectively, according to the National Bureau of Statistics.

As of Aug. 29, the NBS is yet to release provincial output data for July.

In order to achieve their annual output cut goals, Hunan and Shanxi will have to reduce their daily crude steel output over July-December to around 60,000 mt and 140,000 mt, respectively, down by 13,000 mt and 50,000 mt from levels in the first half of 2023, S&P Global calculations based on NBS data showed.

Some Hebei-based mill sources said they are yet to receive government output cut orders as of Aug. 29, but they said as the biggest steelmaking hub, the province will sooner or later carry out government-mandated output cuts.

Hebei produced 116.24 million mt of crude steel output in the first half of 2023, up 4.5% on the year, NBS data showed.

The province’s daily crude steel output in the second half needs to fall by 19%, or 120,000 mt, from the first half average, to keep 2023 output on par with 2022, according to S&P Global calculations.

“But even if Hebei and more regions announce output cut plans in September, it remains unclear whether mills will implement output cuts strictly … currently the market consensus is that China’s steel output cut will be carried out loosely this year, and there is not enough time for any ambitious steel output reduction for the rest of 2023,” a Shanghai-based market participant said.

Some market sources said the domestic steel market had been trending downward since late July on market expectation that China’s crude steel output might stay comparatively high in the coming months.

Platts assessed Chinese domestic rebar prices in Beijing at Yuan 3,711/mt ($510/mt) on Aug. 28, down by Yuan 155/mt from late July, S&P Global data showed.

Other output control plans

On July 24, China’s largest steelmaker Baowu Steel Group received a government order to keep its 2023 crude steel output within 2022 levels, according to company sources.

Also, state-owned Shandong Iron & Steel plans to carry out maintenance on a major blast furnace at its subsidiary Laiwu Iron & Steel in September-October, which will reduce pig iron output by around 5,000-6,000 mt/day, company sources said this month.

Author Jing Zhang, Market Specialist – Metals