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Chinese steel mills to suspend several production lines in August

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S&P Global Commodity Insights survey of 18 large steel plants in different regions of the country showed the reasons reduction in steel output

Chinese steel mills to suspend several production lines in August

Several Chinese blast furnaces are preparing to shut down their finished steel production lines next month due to sluggish demand in domestic and offshore markets, a July 28 S&P Global Commodity Insights survey of 18 large plants across the country showed.

A tight balance of demand and supply for rebar was achieved due to lower production and weak demand.

"Most of the cuts in production were temporary and related to plant maintenance," one source at the East China mill said, adding that when blast furnace margins recover, the rate of increase in production will be fast and strong.

“The demand for hot-rolled coils in China was lower than for rebar. Some plants may switch the production of liquid iron from the production of hot-rolled steel to rebar,” said a source at a plant in Shandong province.

Platts estimated the rebar spot price in Beijing's domestic market at 4,010 yuan per tonne ($592 per tonne) of actual weight excluding stocks as of July 27, down 206 yuan per tonne from S&P Global's latest study released on July 6.

Eight plants surveyed on July 28 had reduced production due to shutdowns of blast furnaces, reduced output or shutdowns of production lines compared to 11 plants on July 6.

Among eight factories, one in Northeast China continued to reduce production through plant maintenance as part of an annual plan set earlier this year. The factory in East China maintains one blast furnace as part of its annual plan. A plant in east China's Jiangsu province said it continued to cut output of rebar, wire rod and hot-rolled steel due to low profits after a survey conducted on May 27 as part of the plant's annual plan. A source at the plant said the plant might not increase production unless margins turn positive.

In addition to the above three plants, the remaining five plants in the east, north and northeast are unplanned production cuts.

Factory in North China cuts production due to negative margins. A Northeast Chinese resident reported that three small blast furnaces and four hot-rolled steel production lines had been shut down at the plant. The East China plant is serving all finished steel production lines until August 6th. Two other plants have cut production due to unscheduled plant maintenance.

"Most mills would not take the initiative to reduce crude steel production," a source at a mill in eastern China said. Chinese factories have concerns as a decline in production now could lead to a cut in their production in 2023 due to government climate controls.

Two mills participating in the survey told S&P Global that they plan to shut down several finished steel lines or switch to other products in August. This was expected to affect finished steel output in August by a total of 140,000 tons, including flat steel and wire rod.

According to S&P Global's analysis of mill margins, rebar margins in China's domestic market fell to negative USD 21.39/t on July 27 from a negative USD 40.57/t on July 5 and are at negative territory from June 13.

In addition, some electric steel mills may be restarting due to higher production margins in EAF, while most of them have not started their furnaces yet because scrap is difficult to collect.

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