Since July, the “look back” inspection work of steel capacity reduction in various regions has gradually entered the implementation stage.
“Recently, many steel mills have received notices requesting reductions in production.” Mr. Guo said. He provided a reporter from the China Securities Journal with a letter confirming the reduction in crude steel production in Shandong Province in 2021. The document was considered by market participants as a sign that Shandong’s iron and steel industry began to restrict production in the second half of the year.
“The steel production reduction situation in the second half of the year is more severe.” Mr. Guo analyzed, “At present, there are no specific requirements for the reduction of production. The overall direction is that the output of this year cannot exceed that of last year.”
From the perspective of steel mill profits, there has been a significant rebound since late June. “The profit of northern enterprises is between 300 yuan and 400 yuan per ton of steel.” Mr. Guo said, “the main steel varieties have a profit margin of several hundred yuan per ton, and the profit of plate varieties may be more obvious. Now the willingness to actively reduce production is not particularly strong. The production cut is mainly related to policy guidance.”
The profitability of steel enterprises is favored by investors. Wind data shows that as of the close of the market on July 26, among the 28 industry sectors of Shenwan Grade I, the steel industry has risen 42.19% this year, ranking second in all industry index gains, second only to the non-ferrous metal industry.
“Regardless of the production control this year or the background of the’carbon neutral’ policy, steel production is unlikely to increase significantly during the year, and the second half of the year is the peak consumption season, it is expected that the profit per ton of steel production will remain at a relatively high level.” Mr. Guo said, The previous production reduction was mainly based on reducing the efficiency of the production line, such as reducing the addition of metal materials in the converter and reducing the grade of furnace materials.
Shandong is the third largest steel-producing province in China. The crude steel output in the first half of the year was about 45.2 million tons. According to the plan not to exceed last year’s plan, the crude steel production quota in the second half of the year was only about 31.2 million tons. In the first half of this year, the output of crude steel in the main steel-producing provinces except Hebei Province exceeded the level of the same period last year. At present, Jiangsu, Anhui, Gansu and other provinces have introduced policies to reduce crude steel production. Market participants predict that the fourth quarter of this year may be an intensive period for steel companies to implement production reduction measures.