China to reduce its crude steel output in 2021

According to China’s Ministry of Industry and Information Technology, the country committed to reducing China’s crude steel output in 2021 from record 1.05 billion tonnes in 202 to achieve carbon emission targets, has recently released a series of measures to accelerate the reduction of steel output which includes a ban on illegal additions of new capacity, bolstering its guidance on capacity swaps & push for mergers & restructuring the steel industry to solve long term issues around competition, unreasonable resource allocation and weak synergies.

Correspondingly, China Iron and Steel Association is advancing a series of carbon emission reduction programs to help fulfil China’s commitment to green development and has set up a new committee to lead efforts aimed at carbon emission reduction planning, research and development of carbon emission reduction techniques and setting carbon emission reduction regulation policies.

According to the CISA, however, steel demand in China in 2021 will likely rise slightly amid the steady development of the economy and steel exports are unlikely to improve much, while imports will increase.

CISA’s vice chairman Luo Tiejun told a briefing that higher demand this year could be met by other means. He said “We can strengthen imports of primary steel products, especially billets, so that rising demand can be met without increasing output. The government is planning to roll out favourable policies to encourage such imports.”
Several Chinese steelmakers are being forced to plan for slightly lower production due to a host of factors including high costs due to elevated imported iron ore & coking coal prices, domestic coke shortages, winter led slowdown in activities in North China curbing demand, swelling inventories, power shortages and COVID19 restriction hitting logistics.

Furthermore, with Chinese New Year holiday (February 11-17) inching closer, steel traders and end users are limiting purchases. Chinese steel industry insiders have reported that some of the mills have undertaken maintenance. 
After impulsive rise in steel prices across the globe in last 3-4 months of 2020, the recent crash of USD 75 per tonne in steel scrap prices to about USD 410 (CFR Turkey) seems to have created imbalance between BF-BOF & EAF route steel making as only the cost of iron ore (USD 170×1.6= USD 272) & coking coal (USD 155×0.8=USD 124) adds to about USD 400, tilting the scale in favour of EAF based steel mills.

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