China's Anshan Iron & Steel Group is set to produce 20 million mt of crude steel this year, operating at just over 83% installed capacity, and output may continue at a similar level in 2012 as slowing economic growth hampers higher levels, a company source said. Anshan is reducing output in response to a slowdown in demand from Chinese and export markets, as steel prices and raw materials costs squeeze operating margins, the source said. Anshan's 2010 output was around 21.7 million mt and output in first-half 2011 has trailed that of a year earlier.
A soft corrective landing for China's surging growth, assuming only a slight contraction in its GDP growth rate that has been in the high single digits, may allow for higher steel output later in 2012, the Anshan source said. Anshan's action to curb output is understood to be not a response to any centralized efforts from Beijing or the China Iron & Steel Association for the nation's largest mills to better manage supplies.
Hebei Iron & Steel Group, Baosteel, Jiangsu Shagang, Wuhan, Shougang and other major Chinese producers' current response on their output is not known. BHP Billiton's Marcus Randolph, chief executive for the ferrous and coal unit, Thursday said that deliveries to China of iron ore and coking coal cargoes were being performed as normal amid tighter trade financing for the purchasers, without requests for cancellations or delays. However, trouble getting letters of credits for Chinese buyers and willingness to wait out some softness in pricing of the raw materials has exasperated the current slump in coking coal and iron ore prices, market sources indicate.
CHINA MILLS MAY MANAGE SUPPLIES
Major Chinese mills may well decide to control their output further due to the current market situation and the issue of the inflation, sources said. "My personal vision is that the market in China is set to slow down slightly in 2012," a Chinese industry source commented.
The World Steel Association Wednesday said it forecasts apparent steel use in China to rise 6% in 2012, down from the expected 7.5% growth annual rate in 2011. Following the latest announcement from smaller producer Nanjing Iron & Steel (Nangang) to cut production in Q4 by 800,000 mt -- comprising 500,000 mt in plate and 300,000 mt of long products -- a CISA source commented that more mills may follow with a similar action. He acknowledged the low margins currently achieved by major steelmakers in China may trigger further production cuts and consolidation. "It is soon to say, but if the authorities don't take structural decisions mills could lower their output as a response to the low margins and the overcapacity in the market," the CISA official said.
NOVEMBER MARKET SOFTER
Some Chinese market participants told Steel Business Briefing, which is owned by Platts, that lower demand in the domestic and export markets will continue into November, so that more producers are likely to follow with output cuts. However, a Shanghai-based analyst said performance varied at different steel mills, so Nangang's decision is not necessarily a signal of wider production cuts in China.
Inflation in the country remains a major issue for the steel industry, affecting demand for goods and housing, while costs rise for producers and pressures government financing for infrastructure. "China has a huge problem with inflation and the government has yet to find a solution. China's steel industry goes hand-in-hand with the country's economic development so we need to look at the inflation situation and find a solution," Anshan president Zhang Xiaogang said on Wednesday at the World Steel Association's annual summit. Zhang on Friday assumed the chairman's role at Worldsteel, marking the first Chinese executive to take the post. Worldsteel represents the interests of member steelmakers.