China is expected to introduce a reduction in steel production during the winter in the northern region of the country to reduce air pollution. However, these cuts, which will be implemented in the fourth quarter, are unlikely to lead to large-scale cuts in China's steel production, raising concerns about oversupply that could affect steel prices in the coming months, the sources said.
While the final details of the 2022 winter steel cuts remain unclear, some market sources expected them to be similar to the 2021 cuts.
Steel mills in northern China, including in Hebei province, home to the country's largest steel production hub, Tangshan, had to keep steel production 30% lower than a year ago at the end of 2021.
However, more steel mills, especially in Tangshan city, are not expected to cut production this winter due to improved environmental performance.
According to S&P Global Commodity Insights, as of mid-September, about eight steel mills in Tangshan have reached environmental protection class A, and the total steel production capacity is 66 million tons per year.
There were only two such steel mills in 2021, and the total crude steel production capacity Steel mills that have reached Grade A will theoretically be exempt from reducing winter steel production. In fact, crude steel production by the two A-rated steelmakers in 2021 grew by 7% year-on-year, while others that did not achieve Grade A reduced production in 2021 compared to 2020 levels.
Moreover, the Hebei provincial government recently announced a white list of enterprises with good environmental protection performance, which included 13 local steel producers.
Production at these facilities will not be affected by environmental issues such as winter smog reduction measures.
One source at the Tangshan plant said China's 2022 winter steel cut was prudent to be less stringent than in 2021, as local mills have invested heavily in improving their environmental performance.
However, it remains to be seen if local governments will order further reductions in steel production to keep annual production in 2022 below 2021 levels for decarburization purposes, the source at the plant added.
According to the government of Tangshan, steel production in Tangshan in January-July increased by 0.7% compared to the same period last year and amounted to 74.69 million tons.
Some market participants expected China to keep steel production in 2022 at the level of 2021, but any government-supported production cuts this year could be modest given the pressure from an economic slowdown.