FOCUS: Chinese autumn-winter production restriction to reopen billet import window – sources

Autumn-winter steel production restriction plans in northern China will start on October 1 and last until March 31, 2021, according to a draft plan on air pollution control released by the Ministry of Ecology & Environment (MEE) late on Tuesday September 29.

Steel mills in Beijing, Tianjin, Hebei, Shandong, Henan, Shanxi and Shaanxi will be affected by production restrictions aimed at improving air quality.

Differences from last year
The region aims to meet the requirements of ultra-low emission production facilities, involving a total 200 million tonnes per year of steel capacity by the end of this year.

Among the provinces and municipalities, Hebei takes 110 million tpy of capacity, Tianjin takes 12 million tpy, Shandong takes 40 million tpy, Henan takes 13 million tpy, Shanxi takes 20 million tpy and Shaanxi takes 6 million tpy.

The plan also urges representative enterprises, including Shousteel, Hesteel, Taiyuan Iron & Steel, Delong Steel, Jianlong Steel and Shandong Iron & Steel to finish their transformation to ultra-low emissions by March-end 2021.

“When the 200 million tpy capacity finishes the transformation, this sum of capacity will be exempt from any kind of production restriction and it will produce steel steadily,” an industry analyst in Beijing said.

In another departure from last year, this year’s plan divides steel mills into grades named A, B and C and will implement different measures for each grade.

Grade A mills which meet ultra-low emission requirements could take production restriction according to their own circumstances, but B and C grade mills need to cut production based on local government instructions.

Billet import opportunities
Market participants expect the production restrictions to cut output in the northern Chinese region in the coming six months, especially in the steel hub of Hebei province.

Hebei produced 115 million tonnes of crude steel between October 2019 and March 2020 during last year’s production restrictions, with monthly output averaging 19.17 million tonnes, according to data reported by National Bureau of Statistics.

This compares with average monthly output of 21.17 million tonnes during April-September 2019, when no provincial-wide production restrictions were in place.

Even during October 2018 to March 2019, when production was not influenced by the Covid-19 pandemic, the monthly average output was 19.94 million tonnes, lower than in the second and third quarters of 2019.

“The restriction will cause lower supply of steel billet because Hebei is the biggest supplier of the product, which may reopen the arbitrage window for billet import,” an import trader in eastern China said.

“China billet prices were typically on an upward trend in the first half year because of low production between October and March and rising demand in January-June, opening up the chance to import billet,” a second trader in the region said.

Fastmarkets’ assessment for steel billet domestic, exw Tangshan, Northern China was at 3,300 yuan ($484) per tonne on June 30, up by 300 yuan per tonne from the year’s low of 3,000 yuan per tonne on February 17. 

But other market participants were less bullish in the billet import market.

“As the major downstream product of import billet, rebar may not have a strong market in the coming months,” a third import trader in eastern China said.

“The housing sector is lacking upward momentum due to central and local government measures to curb speculation on housing, and it takes months from raising funds to starting using rebar in the infrastructure sector,” a rebar trader in east China said.

“Rebar prices recorded losses in September, the typical seasonal peak month, leading to pessimistic sentiment in the market,” an industry analyst in the region said.

Fastmarkets’ assessment for steel reinforcing bar (rebar) domestic, ex-whs Eastern China was at 3,620-3,650 yuan per tonne on September 29, down by 50 yuan per tonne from 3,670-3,700 yuan per tonne on September 1.

No impact on overall steel prices expected
Still, market participants do not think this round of production restrictions will lead to lower production nationwide overall nor support steel prices, based on last year’s figures.

China produced 996.34 million tonnes of crude steel in 2019, up by 8.3% year on year, according to the National Bureau of Statistics.

“Sellers, including traders and steel mills, still have the pressure of high inventories and need to destock, so it is hard to raise steel prices due to the production restrictions,” a second rebar trader in eastern China said.

China Iron & Steel Association (Cisa) reported that its member mills had 13.4 million tonnes of finished steel in their warehouses as of September 20, 3.87 million tonnes higher than that the beginning of the year.

Finished steel stock inventory in the sport market totaled 12.42 million tonnes, 5.6 million tonnes higher than at the start of the year, Cisa said.