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February 22, 2018

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Home » Business » Manufacturing

Steel mills set to roar after curbs end

Source: Agencies | 00:01 UTC+8 February 22, 2018 | Print Edition

CHINA’S steel producers are eager to unleash their mills’ capacity when this winter’s output curbs end next month.

They are hoping for a repeat of last year’s record profits based on high margins and less competition after outdated plants were closed. China shut down up to half of its steel production this winter in 28 cities in the country’s manufacturing heartland in the north as part of an anti-pollution campaign.

With margins still encouraging full output, China’s pent-up steel production should erupt when the curbs expire on March 15.

Because of the curbs, China’s average daily steel output in December was the lowest in a year at 2.16 million tons, government data showed last month.

Average daily output could rise to about 2.5 million tons if the mills quickly boost production when restrictions are lifted, Wang Yingsheng, vice secretary-general of the China Iron and Steel Association said recently.

With the government likely to reimpose the limits next winter, northern Chinese mills will have only about eight months to run at full speed, so plants are stocking up on raw materials to maximize production while the market conditions remain strong.

“I think there could be restrictions again on mills in north China this year and they could increase output before the restrictions,” said a senior manager at a steel mill in south China. “If the market’s good, every mill will try to run at full capacity in order to make more profit.”

Thanks to China’s infrastructure push that sustained steel demand even as the environmental crackdown cut supplies, mills are set to report massive profit gains.

Xinjiang Ba Yi Iron & Steel in northwest China said 2017 net profit might have risen by 3,000 percent and Anyang Iron & Steel, based in Henan province, could show last year’s profit up 1,300 percent, according to preliminary estimates by the companies.

Last month, Jiujiang Steel in Jiangxi Province rewarded workers with 278 million yuan (US$44 million) in 2017 bonuses. The cash weighed 3.5 tons and was delivered by four vans to staff at its main office, according to a company official and photos on Jiujiang Steel’s WeChat account.

Profit margins have retreated from last year’s peaks, but are still more than enough to motivate maximum production, said the southern mill manager.

Chinese steel margins for rebar this year are averaging 866 yuan a ton, according to data from brokerage CLSA. While down from last year’s average of 922 yuan, rebar margins are well above the five-year average of 251 yuan. Hot-rolled coil margins are averaging 865 yuan this year versus a five-year average of 259 yuan.

To prepare for the output ramp-up, steel producers have raised their iron ore stockpiles to 34 days of consumption as of early January, according to consultants Mysteel, almost matching the all-time high of 35 days a year ago.

Even with the bulging inventories, mills are adding more. China imported 100 million tons of iron ore last month, the second-highest on record, even as stockpiles at ports are at 153 million tons, near the record reached in January of 154.4 million.

Soon after China announced the winter controls in February last year, mills increased production ahead of the curbs, hitting a series of output records over the next several months.

The situation will likely repeat itself this year as mills expect another round of restrictions next winter.

“Mills will be more prepared this year and they will just bring forward their production plans if they know there will be supply restrictions again,” said Richard Lu, analyst at consultants CRU.

One possible drag on the expected surge in Chinese output may occur in Tangshan, the country’s largest steel-producing city. Officials there have said they will continue some curbs beyond the March expiry, including at eight mills located near the city center.

Manufacturing


 

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