Ferrous metals divided on cutting China’s steel output

Soaring prices for a range of ferrous products, including steel, iron ore and coke, since April have further divided ferrous market sources inside and outside China over their views on the possibility of Chinese steel production cuts, despite Beijing’s reiterations that demand for steel both inside and outside China has been robust and steel margins have been high.

China’s Ministry of Industry and Information Technology reiterated in late January that it would cut the country’s crude steel production on a year-over-year basis for 2021, but in stark contrast, the country’s crude steel production increased 15.6% or 37 million tons year-over-year to 271 million tons in the January-March period, and domestic production could grow another 10 million tons on a month-over-month basis for April.

The robust steel production through April, therefore, has seriously divided steel market sources into two groups: one believes Beijing will make the planned cuts while the other seriously questions how it can be done now that demand and steel prices have both worked against a production cut, and Chinese mills have been churning out as much raw steel as possible.

Some market sources added that all these record-breaking prices are expected to further fuel enthusiasm in China’s ferrous materials market, making it even harder for Beijing to cool its crude steel production frenzy.

Soaring steel prices and higher steel margins will also inspire steel mills in the rest of China to further increase their production, perhaps using more scrap.

In the long run, reducing carbon emissions in the steel industry can be achieved through the adoption of new technologies such as hydrogen metallurgy, but reducing steel production is an immediate solution to seeing some results, and in this aspect, China has already made a process out of using higher grade iron ore and more scrap.

Many market sources in China, while admitting that cutting steel production under the current circumstances looks very challenging, still strongly believe that the goal will be achieved by the end of 2021.

Beijing would not have repeated this if it were not determined, and as long as it wants, it can also command all Chinese steel companies to close.