steel price

gui yong nian/Adobe Stock

This morning in metals news, U.S. steel imports were down 16% through the first 10 months of the year, steel companies are raising their prices and protests continue in the world’s top copper-producing country.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

Steel imports drop 16% through October

U.S. imports of steel through the first 10 months of the year were down 16% on a year-over-year basis, the American Iron and Steel Institute (AISI) reported this week.

Steel imports through the end of October totaled 24.78 million tons, according to the report.

Meanwhile, U.S. steel imports for totaled 2.18 million tons in October, which marked a 14.5% increase compared with the September import total.

Steel companies raise prices

Amid slumping steel prices, companies like U.S. Steel and ArcelorMittal are raising prices for their products, the Times of Northwest Indiana reported.

According to the Times’ report, the steelmakers have raised their prices for flat-rolled steel three times in less than a month.

Chile protests continue

Widespread protests erupted in Chile in October, at first over a proposed metro fare hike; since then, the protests have expanded to encompass more widespread, systemic ills that are being called out by the protesters in the streets of Santiago and other cities.

Chile is the world’s No. 1 copper producer. Bloomberg reports the country’s recent protests could in fact threaten the status of the country’s major state-owned producer as the world’s No. 1 producer.

According to the report, state-owned Codelco — the world’s top copper producer — had been planning to spend $20 billion in Chile over a decade to modernize its mines.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

However, Bloomberg notes, demands raised by protesters in Chile could be at odds with government funding Codelco had looked for toward that aforementioned modernization. As a result, Codelco may fall from its No. 1 spot, according to Colin Hamilton of BMO Capital Markets, as cited by Bloomberg.

gui yong nian/Adobe Stock

The U.S. steel sector’s steel capacity utilization reached 80.4% for the week ending Nov. 23, as steel prices have recently showed some signs of bouncing back as we inch closer toward 2020.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Adjusted year-to-date steel production reached 87.20 million net tons at a capacity utilization rate of 80.3%. Production for the aforementioned period marked a 2.2% year-over-year increase, compared with the 85.29 million tons at a capacity rate of 78.1% produced last year.

Meanwhile, for the week ending Nov. 23, 2019, domestic raw steel production reached 1.86 million net tons at a capacity utilization rate of 80.4%. The weekly production total marked a decline from the 1.90 million net tons produced during the week ending Nov. 23, 2018 (when the capacity utilization rate reached 81.2%).

On a week-over-week basis, production for the week ending Nov. 23, 2019, declined 0.8% from the 1.88 million net tons produced the week ending Nov. 16, 2019.

By region, production totals for the week ending Nov. 23, 2019, totaled:

  • Northeast: 203,000 tons
  • Great Lakes: 673,000 tons
  • Midwest: 193,000 tons
  • Southern: 716,000 tons
  • Western: 76,000 tons

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Steel prices continue slight gains heading toward 2020

Last week, we noted U.S. steel prices had possibly hit a bottom and appeared to start to gain some slight upward momentum as we head closer and closer to 2020.

U.S. HRC is up 4.42% over the last month, reaching $520/st to start the week, according to MetalMiner IndX data. Since mid-November, the U.S. HRC price has moved off of MetalMiner’s short-term support level of $475/st.

U.S. CRC, meanwhile, is up 3.05% over the last 30 days, up to $709/st. Like HRC, CRC has pushed off of MetalMiner’s short-term support level ($671/st).

U.S. HDG’s gains have been more significant, as it starts to approach MetalMiner’s short-term resistance level of $798/st. HDG is up 6.31% over the last 30 days, having reached $792/st early this week.

U.S. plate prices, meanwhile, are bucking the trend — as if often the case with plate.

Plate is down 15.41% over the last 30 days, down to $615/st to start the week.

In previous downturns, Beijing has taken a range of stimulus measures to keep the economy growing robustly; as a result, it has contributed positively to global GDP and commodity prices.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

But this time around Beijing seems to have a greater tolerance for slowing growth.

While stimulus measures are expected as early as December, the Financial Times reported, they are not expected to be on the scale of those seen in 2008-2009 and 2015-2016.

Freya Beamish, an analyst at Pantheon Macroeconomics, is quoted by the Financial Times as saying China’s stimulus in the 2018-2019 period will be equivalent to about 7% of GDP over the two-year period. Measures taken in 2015 and 2016 were worth 10% of GDP, while the 2008-09 stimulus amounted to 19% of GDP, according to an OECD estimate.

Beijing appears constrained by a number of factors, policy-driven and economic, in what it can do and how far it can go.

Office space is at an all-time high in some Chinese cities, forcing the delay and cancellation to high-profile skyscraper projects and more general office developments, the Financial Times reported.

Following a surge in new residential housing starts earlier this year, growth has since moderated and is expected to slow further in 2020. Beijing seems reluctant to undermine the currency by further monetary easing and is particularly sensitive to avoiding property price rises by stoking demand.

The Financial Times reports that Chinese states and municipalities are already heavily indebted and banks are reluctant to increase bad debts. While infrastructure lending is the most likely form of stimulus, it will probably not be on the same scale as previous measures.

A former Chinese bank official is quoted as saying that due to previous infrastructure investments, “Cities and provinces are having trouble financing new projects as they must spend a significant portion of their cash-paying off debt.” Possibly as a result of this, investment spending grew by only 3.4% in the first three quarters of this year.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

This moderation in appetite for further stimulus coming on top of the cooling housing market undermines the case made in a recent article we reviewed suggesting steel prices could be set for a recovery, extrapolating on the apparent recovery of the Chinese steel sector.

If the Financial Times is correct in its analysis above, any current strength in Chinese — and, by extension, southeast Asian — steel prices could be relatively short-lived.

Amid the doom and gloom on steel prices – at least for producers, you won’t hear consumers complaining — a couple of Reuters reports suggest some of the relentless pressure on prices may ease early next year.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

Demand in top consumer China remains surprisingly robust, yet inventories are falling — suggesting producers are struggling to keep up with demand.

If that were not enough, Reuters reported new starts are being more vigorously investigated and the approval process reviewed, leading the industry to think supply will be curbed further during the winter heating period this year.

A notice jointly issued by the National Development and Reform Commission, Ministry of Industry and Information Technology (MIIT) and the National Bureau of Statistics urges local governments and the State-owned Assets Supervision and Administration Commission (SASAC) to verify the steel firms’ capacity, production and fixed-asset investments.

Both legal and so-called “illegal” capacity is coming under scrutiny, as some mills achieved capacity utilization rates of 150% in 2019 — raising questions about the accuracy of the original capacity estimation.

Mills can by a number of ways, such as using higher-grade ore, boost utilization rates above capacity for a period of time; however, the margin is usually single digits, not 50%.

This month has seen price rises in China for both finished steel products (like rebar, used in construction, and hot-rolled coil, used in medium manufacturing) and raw material inputs, such as iron ore and coking coal, Reuters reported.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

So far, price rises are modest.

But if strong demand continues, it could reduce the volume Chinese mills have available for export and raise the price of material that is sold into neighboring markets, raising the prospect of a firming in global steel prices next year.

It is too early to tell if the trend will continue, but it has been a sufficiently abrupt turnaround in sentiment from last month and will be worth watching in the coming weeks.

The U.S. steel sector’s capacity utilization rate incrementally declined in recent months, falling from 81.0% for the year to date as of late August down to 80.3% as of this past week, according to the American Iron and Steel Institute (AISI).

The year-to-date capacity utilization rate this year has reached as high as 81.9% (back in April).

The figures come in as some U.S. steel prices — including HRC, HDG and CRC — showed some upward momentum late last week.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

For the year to date through Nov. 16, capacity utilization came in at 80.3% for the fifth straight week.

For the year through Nov. 16, the U.S. steel industry produced 85.3 million net tons of steel, marking a 2.3% increase from the 83.4 million net tons produced during the equivalent period in 2018 (when the capacity utilization rate was 78.1%).

Meanwhile, for the week ending Nov. 16, steel production checked in at 1.88 million net tons at a capacity utilization rate of 81.1%. The weekly production figure marked a 1.4% decline on a year-over-year basis, compared with 1.90 million net tons produced during the week ending Nov. 16, 2018 (during which capacity utilization was slightly higher, checkin in at 81.2%).

Meanwhile, production for the week ending Nov. 16, 2019, was up 0.8% compared with production the previous week, which totaled 1.86 million net tons at a capacity utilization rate of 80.5%.

By region, production for the week of Nov. 16, 2019, totaled:

  • Northeast: 206,000 tons
  • Great Lakes: 650,000 tons
  • Midwest: 180,000 tons
  • Southern: 763,000 tons
  • Western: 77,00 tons

Steel Prices Make Gains at Last Week’s Close

While steel prices are still depressed overall, several forms showed some upward momentum last week.

U.S. CRC, for example, ticked up to $701/st to close the week after trading at $684/st the previous session. However, CRC is still down 3.04% on a month over month basis, according to MetalMiner IndX data.

U.S. HDG, meanwhile, rose to $770/st on Friday, up from $748/st the previous session. HDG, however, is down 2.41% on a month-over-month basis.

U.S. HRC ticked up from $483/st to $511/st to close the week, but remained down 3.95% over the previous month.

As is often the case, plate prices bucked the aforementioned trend.

U.S. plate prices dipped below MetalMiner’s short-term support level of $677/st, falling to $611/st. U.S. plate is down 15.96% over the previous month.

In its October quarterly earnings report, steelmaker Nucor said it believed steel prices had bottomed out.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

“Nucor’s earnings in the fourth quarter of 2019 are expected to decrease as compared to the third quarter of 2019,” the company said. “We expect earnings in the steel mills segment to further decrease in the fourth quarter of 2019 from the third quarter, as lower steel prices at the end of the third quarter, which we believe have bottomed, impact our fourth quarter results.”

The normally pragmatic Netherlands has been strangely agitated recently, as both the construction and agricultural industry have protested on the streets of the capital, the Hague, against the government’s measures for combating nitrogen and PFAS-based pollution.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

In itself this would barely be newsworthy for MetalMiner if it weren’t for the impact it is having on an already subdued metals industry.

Even before the widespread disruption to the Dutch construction industry, demand for steel and aluminum was suffering from depressed German industrial consumption, largely due to a downturn in the automotive market.

But in the Netherlands, the government is struggling to resolve an issue with nitrogen emissions permitting, which Reuters reports are four times the E.U. average per capita in the small and densely populated Netherlands.

Although 61% of emissions are coming from agriculture, a sizable portion also comes from the construction industry – a big consumer of aluminum and steel products.

The impact is particularly damaging, as the country has been enjoying a boom in infrastructure and housing investment of late.

As a result of a fiasco over how permits are assessed, a review is underway and, in the meantime, new permits have been withheld, leading to delays and project uncertainty.

Aluminum extruders estimate the European market is down at least 20% from last year as a result. With steel prices also waning, participants across the supply chain are reducing inventories, adding further to the fall in demand being experienced by producers.

Lead times have come in and order books are weak, as many in the steel and aluminum supply chains find themselves overstocked relative to ongoing demand. The double whammy of weak automotive demand now being exacerbated by a fall in construction activity has caught many by surprise.

Want to see an Aluminum Price forecast? Take a free trial!

The government in the Netherlands will no doubt resolve its permitting issues. However, a return to last year’s robust level of activity is unlikely to bounce back quickly and producers remain pessimistic about demand next year.

In the meantime, prices are likely to remain under pressure and lead times will remain short into 2020.

gui yong nian/Adobe Stock

The Raw Steels Monthly Metals Index (MMI) showed mixed price movements in October, with declines outweighing increases for a one-point index drop to 66.

Need buying strategies for steel? Request your two-month free trial of MetalMiner’s Outlook

U.S. steel prices continued to weaken during October, possibly reaching a new bottom.

Prices appeared to bottom out back in July (with the exception of plate), especially with price gains seen during August and early September.

Then, weakness set in again throughout September.

Source: MetalMiner data from MetalMiner IndX(™)

Plate prices dropped by another 14% since late August’s high price of $799/st down to $684/st, with prices near those for CRC. While plate prices are closer in line with historical pricing norms, plate prices tend to fall below CRC prices, despite being equal at this time.

HRC prices also looked particularly weak recently, dropping 18% to $483/st from the late August  price of $590/st.

While CRC and HDG also dropped below July values to reach new 2019 lows, recent declines were milder (but still significant). CRC and HDG prices dropped 10% and 11%, respectively, over the past couple of months, since reaching higher prices in early September/late August.

U.S. capacity utilization continues to hold above the critical 80% mark, at 80.3%, based on year-to-date production through Nov. 2. Production of 81.6 million tons during that period is up 2.5% year over year, according to statistics from the American Iron and Steel Institute (AISI).

Chinese Prices Fail to Gain Momentum

Chinese steel prices looked flat overall but were down slightly of late.

Source: MetalMiner data from MetalMiner IndX(™)

While prices failed to gain any upward momentum, price declines during the past month or two were mild.

Comparing average August prices to early November prices, cumulative declines ranged between 3.3%-5.4% over the period, with HDG and HRC dropping most (at 5.4% and 5.3%, respectively). CRC dropped 4.6% and plate by 3.3%.

U.S.-China CRC Spread Narrows Again, Nears Long-Term Low

With U.S. prices dropping more steeply than Chinese prices during the past few months, the spread between prices on key commodity forms narrowed once more.

Source: MetalMiner data from MetalMiner IndX(™)

Looking at the above chart showing the spread, valued in U.S. dollars per standard ton, we can see the spread dropped to an absolute value of $29/st — its lowest since December 2017’s value of $22/st.

The red line represents average costs associated with imports, indicating at this time U.S. prices should discourage imports by virtue of being relatively affordable.

The purple line represents the theoretical impact of tariff costs (to be adjusted based on actual tariff rates), which render an additional price buffer for domestic producers (in terms of increasing the price that can be charged before imports look more attractive).

Source: MetalMiner data from MetalMiner IndX(™)

In contrast to HRC, the CRC spread continues to exceed levels expected to discourage imports (pre-tariffs), with the spread remaining above $90/st — our theoretical average per standard ton cost associated with importing.

However, prices dropped below the purple line, indicating the tariff creates an import buffer for CRC at a tariff rate of 25% (based on current price differentials).

U.S. Commodity Steel Imports Decline

According to U.S. Census Bureau data, imports of hot roll sheets totaled 151,330 metric tons in September, compared to 157,636 tons in August. September imports of HRC decreased by 15.5%, from 179,105 metric tons in September 2018.

Imports of cold roll sheets totaled 124,286 metric tons in September, compared to 126,704 in August. Compared to September 2018, imports of CRC dropped by around 19.2%, down from 153,728 metric tons the year prior.

On a monthly basis, increased imports came primarily from Mexico, Canada and Turkey. Imports from Korea, Japan and Spain decreased last month.

In terms of year-to-date figures through August, steel imports totaled 18.8 million metric tons compared with 21.7 million metric tons during the first eight months of 2018.

HRC imports decreased the most, while black plate, line pipe and tin-free steel imports increased the most.

On a year-to-date basis through August, imports from Canada declined, while increases occurred from Brazil, Spain and Ukraine.

Chinese Steel Production Increases

Based on data from the World Steel Association (WSA), global production increases slowed in September.

Production from January through September of this year reached 1,391.2 million tons, up by 3.9% compared to the same period of last year. However, last month, the year-to-date increase measured 4.6% for the January-August period.

Year-to-date increases in Asia totaled 6.3% over the period, while E.U. production contracted by 2.8%. North American production of 90.6 million tons translated into a small increase of 0.3%.

September crude steel production declined in most major producer countries compared with September 2018, with the exception of China, India and Italy.

Crude production in China decreased to 82.8 million tons in September, compared with August production levels of 87.251 million tons, but increased by 2.2% compared with September 2018. India’s production increased by 1.6% to 9 million tons in September compared with last year, while Italy produced 2.2 million tons, a 1.1% increase compared with September 2018.

Japan’s September production dropped by 4.5% compared with September 2018, falling to 8 million tons. South Korea saw a drop of 2.7% during the same monthly comparison period, to 5.7 million tons. A decline of 4% hit German production, with 3.4 million tons produced, while France’s production dropped by 10.2% to 1.2 million tons.

What This Means for Industrial Buyers

Global production levels remain higher, primarily driven by high Chinese production, while demand still looks weaker.

If manufacturing gains continue in China, we could see some pricing momentum return. Some signs point in that direction; as of yet, demand has not yet pushed prices higher.

Buying organizations interested in tracking industrial metals prices with ease will want to request a demo of the all-new MetalMiner Insights platform.

Buying organizations seeking more insight into longer-term steel price trends may want to read MetalMiner’s Annual Metal Buying Outlook.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Actual Raw Steel Prices and Trends

Steel prices showed mixed movements in October.

Korean scrap prices registered another large drop this month — following last month’s 16.9% decrease — falling another 30.2% to $81/mt. However, Korean pig iron prices increased by 2.8% to $368/mt.

U.S. shredded scrap prices also decreased again this month, falling 11.4% to $225/st.

The U.S. Midwest HRC futures spot price dropped 5.2% to $495/st, while the Midwest HRC futures three-month price increased by 3.6% to $549/st.

LME billet three-month prices dropped 2.3% to $239/st.

Once again this month, Chinese prices in the index showed mixed, generally mild movements.

China billet prices increased by 1.6%, to $496/mt, while HRC prices decreased by 1.2% to $499/mt. Coking coal prices dropped by 5.4% to $248/mt, the largest Chinese price decline this month, while iron ore prices increased by 1.6% to around $63 per dry metric ton.


Editor’s Note: This article has been corrected to reflect the most recent AISI capacity utilization rates and the price delta between the ROW and the US.

Judging by the plunging share price of steel producers and the collapse in steel prices from $1,006 per ton just over two years ago to $557 now, it would seem that Steelmageddon — the term famously coined by Bank of America Merrill Lynch — is upon us.

Or is it?

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

A recent Fortune article puts steel producers at fault for rushing to restart idled capacity and even investing in new facilities following President Donald Trump’s imposition of a 25% import duty in 2018.

The measure did meet its objective of lifting capacity utilization from 73% to 80%, as domestic steel mills became more competitive behind the tariff barrier. Though utilization rates dipped in late August through mid-October, they have since come back above 80%.

If that were the end of the story, it is possible steel producers would still be able to play the market by maximizing sales with their 25% buffer against imported steel.

As exemptions have been granted to major trading partners such as Canada and Mexico, that has minimized the benefits of the tariffs for domestic producers. Initially, U.S. producers were at best only 1-2% below the price of imported steel, taking the majority of the 25% as increased profit.

But today, the price delta between the ROW and the U.S. is virtually nonexistent.

Some would argue a global trade war waged by the president, specifically but not exclusively with China, has also contributed to a slowing of steel demand. The counter-argument suggests that while we have seen a drop from 2018, the reality is that we might be at the end of a long-running expansionary business cycle that would have seen slower demand anyway.

The article argues the rise in domestic steel prices has made some U.S. manufacturers less competitive for both domestic sales and their exports. But our own data suggests that 12 out of 18 manufacturing sectors in 2018 had record profits, despite tariffs.

Now, steel plants are being idled again as oversupply is depressing prices below the level seen even before the imposition of the 25% import tariff.

CNN reported U.S. Steel recently announced it would temporarily shut down a blast furnace at its venerable Gary, Indiana facility, another at a facility near Detroit and idle a third plant in Europe due to weak demand and oversupply.

Steel producers’ earnings have headed south in lockstep with falling demand.

Fortune states the combined earnings of U.S. Steel, AK Steel, Steel Dynamics and Nucor tumbled more than 50% in the first two quarters of this year. Capacity utilization dipped back below the 80% target primarily in September and October but has since recovered to 81.6% according to the latest AISI data for the week ending Nov. 2 and year-to-date capacity utilization reached 80.3% compared with 77.5% from a year ago.

The basis of the Section 232 justification was that the U.S. needed to maintain a level of investment and capability in the steel industry as a matter of national security, that certain steels were critical for military and strategic requirements.

Although the defense secretary at the time, James Mattis, said the military needed just 3% of U.S. production of steel and aluminum and that imports didn’t hinder its ability to protect the nation, there are some countries – the U.K. is an example — where the domestic steel industry has been allowed to wither so significantly that it now relies on imports of critical defense materials, like steel, for the hulls of its nuclear submarines.

A better counter would be to question whether tariffs were and remain the best way to protect investment and capability in those strategic areas of production.

Free Partial Sample Report: 2020 MetalMiner Annual Metals Outlook

Either way, a global slowdown, coupled with a rush to return capacity to production, has created an oversupplied market in which steelmakers have suffered.

Nor will demand return anytime soon if the World Steel Association is correct.

The association forecast U.S. steel demand will slow to 1% in 2019 (from 2.1% growth last year). In 2020, growth is expected to crawl to just 0.4%, quite possibly prompting the closure of yet more mills and a return to pre-tariff levels of profitability and capacity utilization.

That’s not what the market or the industry wanted. However, to answer the headline, until we see a crash in the steel capacity utilization rate, it’s hard to argue Steelmageddon has arrived.

The U.S. steel sector notched a capacity utilization rate of 81.6% for the week ending Nov. 2, according to a recent American Iron and Steel Institute (AISI) report, as U.S. steel prices continue to plunge.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

U.S. steel production reached 1.89 million tons for the week ending Nov. 2, marking a 0.1% year-over-year increase over the week ending Nov. 2, 2018 (when production reached 1.88 million tons at a capacity utilization rate of 80.5%).

Meanwhile, production during the week increased 1.2% compared with the previous week ending Oct. 26, 2019, when production totaled 1.87 million tons at a rate of 80.7%.

For the year to date, production reached 81.60 million tons at a capacity utilization rate of 80.3%. Production during the period was up 2.5% compared with the 79.58 million tons produced during the same period in 2018 (when the capacity utilization rate checked in at 77.5%).

By region, production totals checked in at:

  • Northeast: 190,000 tons
  • Great Lakes: 676,000 tons
  • Midwest: 181,000 tons
  • Southern: 767,000 tons
  • Western: 74,000 tons

Steel’s Slide Continues

On the price side, October proved to be another downward month for U.S. steel prices.

U.S. hot-rolled coil was down to $483/st as of the start of the month — nearing MetalMiner’s short-term support level. The price declined 12.97% month over month.

U.S. cold-rolled coil fell to $684/st, down 7.69% month over month. U.S. hot-dip galvanized is down 7.21% month over month, having fallen to $746/st.

The plate price dropped 7.07% to $684/st.

Steelmakers continue to grapple with the reality of falling prices, now with over 18 months gone by since the Trump administration slapped a 25% tariff on imported steel.

U.S. Steel, for example, reported an adjusted net loss of $35 million in its third-quarter earnings announcement. Meanwhile, in 3Q 2018, the steelmaker reported adjusted net earnings of $321 million.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

For the first nine months of the year, U.S. Steel reported adjusted net earnings of $124 million, down 80.6% from the $640 million reported during the first nine months of 2018.

A recent Platts report offers a worrying picture of overcapacity in the Chinese steel market, which could have ramifications for steel prices worldwide.

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

When Europe or the U.S. has an overcapacity issue, domestic producers suffer and domestic prices are depressed, but the effects rarely ripple much beyond the region’s borders.

But in part because of China’s dominance in the steel sector — producing over half the world’s steel — and in part because Chinese producers use exports to dump excess production when the country produces more than it consumes, the rest of the world feels the impact through increased exports of low-cost steel products.

China has been engaged in a multiyear program to shutter outdated, more polluting steel capacity. New additions have been authorized only on a replacement basis, but Platts’ analysis suggests plants that have been closed for some years but not pulled down have been allowed to count towards the construction of new, far more efficient steel plants.

Specifically, the report states China’s net crude steel capacity expansion will total 37.65 million mt per year over 2019-23, of which 34.88 million mt per year is due to come online in 2019. This will take China’s total crude steel capacity to around 1.2 billion mt per year by the end of this year.

In the September-October period of this year alone, China approved eight steel capacity replacement projects, Platts reports, which will see 17.18 million mt per year of pig iron and 13.56 million mt per year of crude steel capacity commissioned in the next 3-4 years.

The new projects are predicated on closures of 19.52 million mt per year of pig iron and 15.21 million mt per year of crude steel capacity (5.18 million mt per year of pig iron and 2.16 million mt per year of crude steel capacity were already closed before the end of 2018).

This means there will be just 14.39 million mt per year of pig iron and 13.04 million mt per year of crude steel capacity closed during 2020-23, resulting in a net increase of 2.79 million mt per year of pig iron and 0.51 million mt per year of crude steel capacity over the period.

The problem is further exacerbated by actual output from new facilities being even higher than headline capacity, Platts reports. The new facilities can produce up to 20% more than the stated installed capacity, possible through improved production technologies — by adding more scrap into the iron and steelmaking process — and by using higher-grade iron ore, the article states.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Steel demand in China, at least from the construction sector, has been robust this year.

But worrying signs are appearing that supply is exceeding demand.

Rebar margins have fallen to just $29/mt during July-September from $159/mt in the same period last year.

Manufacturing is depressed, particularly in the automotive sector. The property sector is expected to weaken next year as new plants come onstream looking to run at 100% capacity to recoup investment; increased exports may be the inevitable result.