China plans October start to winter steel output cuts

China is poised to implement a 50pc winter pig iron production cut in fewer north China cities this year, although the restrictions may start on 1 October, 45 days earlier than it did in 2017.

Blast furnace output is expected to be cut to half in the cities of Tianjin, Shijiazhuang, Tangshan, Handan, Xingtai and Anyang, said a draft proposal for emissions control during the winter heating season prepared jointly by the industry and environment ministries. At least 30pc output is expected to be cut in 22 other cities in the region, although city governments will be allowed to raise this limit. Last year saw 28 cities enforce a 50pc production cut in the autumn and winter months. Tangshan and Handan are the two largest steel-producing cities in north China.

Steel mills that meet the ultra-low emissions regulations, which are expected to be made compulsory in Hebei from October, may be spared production cuts. The exception is during periods of orange or higher levels of pollution alerts in the color-coded alert system, when even such mills may have to operate at 50pc of their blast furnace capacity.

The production cuts will possibly be implemented from 1 October instead of 15 November as was done last year, while the restrictions may be lifted on 31 March instead of 15 March. September and October are peak sales months for steel mills with sales usually dipping in the winter months starting November.

The proposal will probably turn into actual policy. The government has sought views of steel mills on the proposal but there is unlikely to be much revision to the proposals, said the manager of a Chinese steel mill that received the draft proposal from the government. The influence of the proposed production cuts will be similar to the output cuts last year, said the executive of another mill that received the draft proposal.

Apart from the restrictions on blast furnaces, iron ore sintering and coking equipment will be suspended to the extent of a loss of pig iron output in each mill, a policy measure not implemented last year. Coal-fired casting equipment, other than electric arc furnace and natural gas-fired furnace, will have to be suspended in the winter and autumn months.

The draft proposals only cover the north China’s key steel production region of Beijing-Tianjin-Hebei. Steel output cuts this year may be enforced on up to 80 cities, including in the provinces of Jiangsu, Shaanxi and Shanxi. A comprehensive emissions control proposal is to be made public shortly.

Last year’s blast furnace output cuts did not reduce crude steel production as mills in south China lifted output rates. The north China mills increased scrap charge to basic oxygen furnaces (BOFs) to compensate for less blast furnace output. Some mills may have stocked up on steel ahead of the restrictions.

The proposals for north China could cut steel production much more than it did last year, said an analyst report by Hua Chuang Securities. Restrictions on sintering and coking will exert additional pressure on steel output, scrap rates in BOFs are already high and further increases may be too expensive and the larger number of days of restriction will also have a wider impact. The production restrictions are partial and the final output restrictions on 80 cities will add to the intensity of output restrictions, Hua Chuang added.

“Overall, compared with last year’s production restriction policy, this year’s regulations are more stringent and specific, and the market sentiment has been boosted,” said a report by Fusheng Finance.