China steel mills shrug off anti-smog measures, push output to fourth straight record

14 August 2018

China’s steel output rose in July to a fourth straight monthly record as mills ran full tilt to cash in on strong profit margins, despite anti-smog measures imposed by local governments.

Mills in China, the world’s top steel producer, churned out 81.24 million tonnes of crude steel last month, up 1.3 percent from June and 7.2 percent from the same month last year, data from the National Bureau of Statistics showed on Tuesday.

“The reason we didn’t see declines in steel output amid the environmental crackdown is that steel mills have improved their production efficiency by using higher grades of iron ore and adding more scrap steel to churn out more products,” said Wang Yilin, an analyst at Sinosteel Futures.

Daily average output fell 2 percent from June to 2.62 million tonnes in July, according to Reuters calculations based on the official data. July has one more day than June.

Year-to-date output to end-July grew 6.3 percent compared with the previous year to 532.85 million tonnes.

Profit margins at Chinese steel mills touched around 1,100 yuan ($159.59) a tonne, near the record levels of last December, according to analysts from Huatai Futures.

The margins are supported by strong demand from downstream users and ongoing supply-side reform, as well as environmental measures that have helped to eliminate low-cost producers from the market, the Huatai analysts said.

Sinosteel’s Wang said, though, that space for mills to ramp up output is limited as the crackdown on pollution looks set to intensify, with industrial plants around Beijing expected to adopt more stringent production curbs.

Cities in Hebei province, the country’s steelmaking hub, have been working to implement output curbs in heavy industry to meet Beijing-set targets for clearing their skies.

Hebei mills were ordered to shut up to 50 percent of their capacity over summer, while more stringent measures are expected during the coming winter season.

Weekly utilization rates of blast furnaces at Chinese steel mills had dropped for a third straight week as of Aug. 3, touching their lowest since mid-April, according to Mysteel consultancy.