Chinese steel mills cut production due to poor forecasts

Reduced domestic and overseas orders are forcing many metal fabrication factories in China's southern province of Guangdong to close weeks earlier than usual, while some are also cutting production plans for next year, manufacturers said.

Extended shutdowns in the world's largest consumer of metals will lead to an increase in inventories of primary metals used to manufacture finished goods, driving up the price of such raw materials in 2023.

Demand in the world's largest consumer of metals has been hit hard this year by a downturn in the country's huge real estate sector, as well as stringent COVID-19 containment measures that have permanently disrupted industrial activity.

Earlier this month, China abruptly abandoned its strict COVID-19 policy, but the lifting of restrictions has resulted in high infection rates, further disrupting production.

Manufacturing activity is expected to continue declining in December, a Reuters poll on Friday showed.

Overseas orders for Chinese products are also falling as the global economy slows.

“Our orders are down 30% as our customers, namely metal processors, are shutting down their production due to declining real estate consumption,” said a manager at a zinc alloy manufacturer in Guangdong with a monthly output of 2,000 tons.

The company has already closed its plant for the Lunar New Year holiday starting on January 21st and has asked workers not to return until February 5th.

Chinese factories usually shut down production for two weeks during the Lunar New Year so workers can return home to celebrate the holiday with their families.

“This year, at least half of our suppliers and customers stopped their production for about one month,” said a copper pipe manufacturer from Foshan, an industrial city in southern Guangdong.

In December, air conditioner makers, the main consumers of copper pipes, cut their planned production by 39% year-over-year to 11.7 million units, said Suo Xiaofang, deputy general manager of home appliance research at information provider ChinaIOL.com.

Most aluminum profile makers in Foshan have also already closed for the holidays, said Li Suheng, non-ferrous metals analyst at CITIC Futures.

“This will have a significant impact on aluminum demand in the short term,” she said at a conference held by the Shanghai Metals Market in Foshan on Friday.

Inventories of the light metal are expected to reach 1.24 million tons in February, Li added, compared to about 500,000 tons this month.

The widespread shutdowns are occurring even as Beijing adopted a series of new policy measures to revive its heavily indebted real estate sector and pledged support to struggling consumer and service industries.

Metals sector participants said it would take time for the policy to stimulate real demand and restore consumer confidence.

Another Foshan-based copper and aluminum maker plans to cut production by as much as 20% in the first half of 2023 compared to the same period a year ago, the manager said.

Similarly, a Guangdong-based copper pipe manufacturer said his firm also plans to cut production by 20,000 to 30,000 tons next year. This year, production has already been reduced by 80,000 tons to 520,000 tons, he said.