China may report a 2-3% reduction in crude steel production in 2022

According to industry sources, China is likely to announce a reduction in the 2022 steel production cut target in July by 20-30 million tons, or 2-3% year on year.

A reduction in steel output at this level may not provide much of a boost to the Chinese steel market as annual steel demand, dented by the debt-laden real estate sector, could fall even faster.

Some sources expect Chinese steel prices to continue to fluctuate in the second half of the year, but within a narrower range than in the first half.

China's annual steel demand will fall by at least 5% year-on-year in 2022, which means that in order to reduce steel inventories and real increase in steel prices, China must cut its annual crude steel production by about 50 million tons per year. some sources said.

“But it is not possible for China to reduce annual steel production by about 50 million tons, as this will cause unemployment and put strong downward pressure on GDP growth,” the source said.

If China cuts crude steel production in 2022 by 20-30 million tons per year, its annual crude steel production will drop to around 1.005-1.015 million tons. This means that the average daily production of crude steel in June-December will be from 2.665 million tons to 2.711 million tons, which is 13-14.5% less than the daily level in May, but still 1.4-3.2% higher. than for the same period in 2021.

Some market sources said that China's crude steel production had already declined in June and that the decline in steel production will accelerate in July as most steel mills are currently unprofitable and both mill and spot steel inventories are high.

According to sources, a reduction in steel production in July will prevent a further fall in steel prices or even cause some upward corrections, but they will remain too modest to really reverse the downward trend due to weak steel demand.

Steel demand in the manufacturing and infrastructure sectors has been gradually improving since June, but the property-related slowdown in steel demand has been too sharp and is unlikely to improve at least in the third quarter.

China's real estate sector, the most important driver of steel demand in China, could face a drop in home sales and investment in the third quarter, according to some market observers.

However, even if new home sales begin to increase yearly in the fourth quarter, developers will be putting most of the money into ensuring projects are completed rather than starting new homes, which will benefit commodities like glass or copper, but not steel.