China’s July steel output falls 8% on year as demand from property, infrastructure eases

China’s crude steel output fell 8.4% year on year to 86.79 million mt in July, marking the first month of year-on-year decline since April 2020, National Bureau of Statistics data released Aug. 16 showed, but was still outpaced by a decline in demand from the property and infrastructure sectors.

Crude steel output averaged 2.8 million mt/day in July, down 10.5% from June and also marking the lowest level since April 2020, the NBS data showed.

Pig iron output at 72.85 million mt averaged 2.35 million mt/day in July, down 7% from June and down 8.9% year on year.

Market sources were expecting iron and steel output to decline further in August, but had mixed views on the price outlook for the rest of 2021.

A fall in construction steel demand from the property and infrastructure sectors, which accounts for around 50% of China’s total steel consumption, has outpaced the decline in output since July, resulting in steel inventories reaching the second highest volume on record in mid-August, market sources said.

As a result, China’s rebar price fell 3% between July 26 and Aug. 16, when it stood at Yuan 5,310/mt.

Floor space for new home starts fell 21.5% year on year in July, while infrastructure fixed asset investment or FAI fell 10.5% over the same period, according to Platts calculations based on NBS data.

Over January-July, China’s crude steel output was up 8% year on year at 649.33 million mt, the NBS data showed. Pig iron output rose 2.3% over the same period to 533.5 million mt.

Property new starts edged down 0.9% on the year over the seven-month period, while infrastructure FAI rose 4.6%, although slowing from 7.8% year-on-year growth in H1, according to Platts calculations based on NBS data.

Outlook uncertain

Some market sources expected China to continue efforts to deleverage its property sector and address hidden local debt risks behind infrastructure projects in coming months.

As a result, construction steel demand was expected to decline in H2 from a year earlier, while construction-related manufacturing segments such as excavator and heavy truck building were also expected to slow down, according to market sources.

“The trend of Chinese steel prices in H2 will largely depend on how aggressively China implements steel output cuts, but so far nobody is sure about timetables and scales,” one market source said.

In a bid to ensure that calendar 2021 output is on par with 2020, China’s crude steel production over August-December would have to decline by 48 million mt or 10.4% on the year to 416 million mt, or 2.72 million mt/day.

Some market sources said it would be challenging to achieve, as there were more than 500 steelmakers in China and coordinating output cuts among them was a complex task.

They expected China’s steel output cuts to increase in the fourth quarter as construction activity in northern China’s is pared back to reduce air pollution ahead of the Winter Olympics in Beijing and Zhangjiakou in February.

“The only certainty in the Chinese steel market may be that steel prices will fluctuate greatly in H2,” one source said.