Why is China reducing its crude steel production?
China's top seven crude steel-making provinces showed a 6% y-o-y drop in production over January-July, 2022, as per data maintained with SteelMint. The volume in the first seven months of CY2022 dropped to 609 million tonnes (mnt) from 651 mnt in January-July, 2021.
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Amongst the seven provinces, Hebei is the largest producer. Its production volume dropped 7% to 130 mnt in the period under review from 139.44 mnt in the corresponding period last year (CPLY).
The province that experienced the highest drop was Shangdong. Its volumes dropped 19% to 42 mnt in this period (against 52 mnt in CPLY).
The second-highest drop was seen in Liaoning. Output here dropped 8% to 43 mnt (47 mnt), followed by Hebei.
Reasons for the drop in production
Decarbonisation drive: The Chinese government has decided to maintain an annual decline in its crude steel production. It has decided to keep its 2022 crude steel output at levels lower than 2021's. It reduced 2021's production by around 30 mnt. The world's top steel producer produced 1.035 billion tonnes in 2021 against 1.065 bnt in 2020. The annual reduction is concomitant with the country's decarbonization goals.
Lockdown blues: The country has been in the grip of Covid on and off in 2022 which has led to severe lockdowns and a drop in domestic demand as well as production. The production cut mandates are thus co-inciding with lockdown blues.
Realty sector crash: The country's real estate sector crashed with the collapse of real estate giant Evergrande late last year. Since then, the real estate construction sector, which is the largest consumer of steel along with infrastructure, has been beset by trouble. Real estate launches and construction both have been in negative territory, especially since March 2022. This had dented China's domestic steel demand, aiding the production cuts.
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