Will China Really Cut Steel Production?

China's huge steel sector and the iron industry that powers it are grappling with a seemingly conflicting policy impulse that it should produce less this year, even as demand remains strong amid post-pandemic stimulus spending.

In 2020, China produced a record 1.05 billion tonnes of steel, helping push iron ore spot prices to an annual peak of $ 175.40 per tonne on December 21. Over the year, prices have increased by 75%.

The spot price of a benchmark 62% iron ore shipped to North China has since fallen below $ 160 per ton, according to pricing agency Argus.
While record steel production in China has played a role, global iron ore shipments have also been hit by a number of problems in Brazil's second largest exporter, which has been hit by disruptions from the coronavirus pandemic, mine closures for safety reasons, and a fire last month. export terminal.

Australia's largest exporter managed to keep its supplies stable, but this was not enough to compensate for the loss of supplies from Brazil while meeting Chinese demand.

The question for market participants is whether China will actually cut steel production in 2021 or whether current stimulus spending will triumph as authorities prioritize economic growth over pollution and energy consumption.

The official line says that steel production and output should decline this year.

According to a December 29 report from the state news agency Xinhua, Minister of Industry and Information Technology Xiao Yaqing called on the steel industry to "decisively" cut production volumes and ensure a year-over-year production cut in 2021.

However, the industry body China Iron and Steel Association (CISA) expects steel demand to rise this year amid favorable macroeconomic policies.

To address this dilemma of how to reduce steel output while meeting demand, CISA offers imports as a solution.

“We can increase imports of primary steel products, especially billets ... to meet the growing demand without increasing production,” CISA vice chairman Luo Tiejun said at a new conference on January 27.

If China does indeed restrict steel production in 2021 and increase its imports of steel products, this will create an intriguing dynamic, as a result of which China's iron ore imports may decline slightly, while imports of other manufacturers will increase by a corresponding amount.

If it happens