Posted on 09 Mar 2020
China's steel output in March will almost certainly be lower on a yearly basis, but could potentially be higher than in February, market sources said Thursday, as Chinese steel mills adopt different strategies around steel production depending on the local situation with inventories and logistics.
The net outcome of this is that total steel production in March may not be as weak as anticipated.
Mills in some parts of the country have deepened production cuts due to high inventories and tight cash flow. Others have restarted or ramped up production due to improved logistics and demand, according to market sources.
Some sources said daily steel output in March will almost certainly be lower on a yearly basis, and could potentially be higher than in February.
Steel output cut plans announced by March 4 will result in the loss of 3 million mt of pig iron, which would be lower than the pig iron loss in February, which S&P Global Platts estimates was 4.5 million mt. This is because some mills finished maintenance work on blast furnaces by the end of February or in early March due to improved logistics and the return of workers. Mills drew down finished steel inventories, while the maintenance was carried out.
Meanwhile, some independent electric arc furnaces have restarted production recently after the long break.
Chongqing Yonghang Iron & Steel restarted two EAFs on March 1, and will restart its third EAF around March 6, adding crude steel output of around 4,000 mt/day, according to local market sources. Chongqing Yonghang had suspended all of its EAFs since before the Lunar New Year holidays in late January.
One of the sources said current steel prices were unlikely to be profitable for most independent EAF steelmakers. "But different mills have different strategies, and making profits is not the only reason to restart or keep running," he said.
Some mills needed to restart to secure market shares, generate cash flow and guarantee employment, he added.
However, he said warehouses in Chongqing were so full that steel had be placed outside of the warehouses. He said end-user demand was recovering, but at a very slow pace, and therefore any production restarts would be modest due to the pressure of soaring steel inventories.
Another market source said some mills that did not reduce production in January or February may have started to do so in March to help reduce inventories. But the source said mills would try to minimize output cuts to secure market share.
One steel trader said unless mills could not find storage for their steel products or their cash flows were all tied up in inventories, they would be unlikely to cut output significantly, which would put pressure on a slow steel market in March.
Source:S&P Global Platts
