How Long Will The Weak Situation in The Steel Market Last?

In order to complete the annual crude steel production reduction task by 2021, a strong production reduction policy was implemented in the second half of the year if production increased in the first half of the year. On October 13, 2021, the Ministry of Industry and Information Technology and the Ministry of Ecology and Environment issued a joint notice on "Stagnant Production of Iron and Steel Industry in Beijing-Tianjin-Hebei and Surrounding Areas"; 22 provinces, including Jiangsu, Shandong, and Guangdong, proposed requirements such as strengthening dual control of energy consumption. The production restriction policy was tightened further in the second half of the year.

Only a few areas in Hebei, Shanxi, Shandong and other places implemented production restrictions in October of this year, and the intensity and duration of the restrictions were far less than in the same period last year.

Steel mill profits have plummeted as a result of the continuous decline in steel prices, and some steel mills are now losing money. With the increase in losses, some steel companies have begun to reduce production on their own. Shanxi Jinnan Iron and Steel recently announced that all six blast furnaces will be shut down for maintenance, and crude steel output in the fourth quarter will be lower than last year. Previously, Northwest United Steel established an inspection team to supervise the implementation of production reduction and production restrictions by each shareholder steel company, as well as maintenance arrangements or plans for each shareholder steel company.

The recent blast furnace operating rate has also decreased. According to Lange Steel Cloud Business Platform monitoring data, the average operating rate of blast furnaces in 201 iron and steel market across the country on October 27 was 78.6%, down 0.1 percentage point from the previous week; the "four consecutive declines" have been reduced by 2 points.

The drop in output is not unrelated to the lack of demand. September is the peak construction season, demand is gradually increasing, and the transaction atmosphere in the steel market is very active, so everyone is hoping for even better demand in October. During the short and long holiday, however, the new crown pneumonia epidemic in many parts of China was on the rise again, and many places were controlled, closed, and even silent; transportation and logistics were severely impacted, resulting in no visible recovery in terminal demand.

Furthermore, the temperature will continue to fall until the end of October, putting an end to outdoor construction projects in some northern regions. Construction's "peak season" is gradually giving way to the "low season," and the steel market will also fall seasonally.