Despite all the media coverage and public proclamations, did we really believe China was going to force its massive steel industry to shutter capacity and retrench if it meant an impact on GDP growth?
For a while it seemed as if they were going to follow through on their declarations. Certainly prices rallied strongly on the anticipation that steel output would be restricted and as a result scarcity would drive prices higher. On the supply side iron ore took a tumble as volumes were expected to be hit if the second half of the year experienced a sharp reduction in output.
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But although June saw a one-month fall the first half of this year has so far seen a robust increase in output to a new record, according to the FT. Last year’s 1,054m metric ton, over a billion tons, was a record but, according to Morgan Stanley, this year is still expected to be 4-5% higher even if output falls in the second half.
Gradual cuts in China steel to meet emissions targets
It seems the about-turn in prospects has come about because Beijing is concerned that cutting too much too soon will result in constraints on economic growth and has started back-peddling on earlier directives.
The mantra is now cuts will be introduced gradually over a longer timeframe to achieve emissions targets in an “orderly and unified way,” the post reports.
The steel industry emits some 15% of China’s gross carbon emissions due to its reliance on coal so in the long-term if China is to meet its commitments for peak emissions by 2030 it will need to rein in output or achieve a massive switch to EAF from blast furnace technology.
Not surprisingly, as realization that a constrained steel supply market was evaporating, so did support for higher prices.
China steel’s effect on US, global markets
MetalMiner’s monitoring of domestic Chinese steel prices has seen numbers come off across domestic markets and across all steel forms this week. Although Chinese steel is largely shut out of US markets, China remains a substantial supplier to the rest of the world, with exports up over 30% year on year during the first half of this year. To the extent that this tonnage continues to displace supply from domestic mills in the rest of the world it may free up some tonnage for a highly constrained US market suffering long mill backlogs and expected high prices through the rest of this year.
The US imports some 20% of its supply, according to Bloomberg estimates, and has been fighting for tonnage all year with recovering global markets.
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