Why Does The Output Of Crude Steel Under The Production Capacity Reduction And Environmental Protection Restriction Continue To Innovate?

- Jul 19, 2018 -

According to data from the national bureau of statistics recently released in June, China's crude steel production 80.2 million tons, up 7.5% from a year earlier, the average daily steel-producing amount up to 2.673 million tons, in April and may even a record high, on the basis of another record high.


China's crude steel output is still rising against the backdrop of the steel industry's de-production capacity and the "strictest" environmental restrictions in history, causing concern among industry insiders.Some people in the industry believe that there is a market demand growth factor, but not too optimistic.If this speed continues to expand production, it will not rule out the second half of the whole industry oversupply.


"Production is first and foremost based on a better release of demand.Due to environmental protection and the late resumption of work during the Spring Festival, the demand for infrastructure and other steel products in the first half of this year was not gradually released until April.The main reason, analysts say, is that steel prices have held up well this year and corporate profits have been strong, especially since profit margins peaked in May, making production more aggressive.


Gross margins on steel sales have risen to between rmb500 and rmb1,000 a tonne, according to the data.Meanwhile, steel stocks are not high.Volume price rises, supply and marketing two flourishing, make the first half of this year some steel enterprises achieve the best performance in history.


According to the two companies that first reported their results in July, anyang iron & steel expects first-half net profit to rise 3142% to 3682%, and valin steel to increase 253% to 274%.


It is known that the increase of crude steel output is also related to the change of statistical caliber.


"In the past the illegal production of 'ground bar' steel was not included in the official crude steel production statistics.Last year, China fully cleared the "floor steel", but the corresponding demand did not disappear, compliance steel mills by increasing production to meet this part of demand.When you look at the statistics, it's more productive.China iron and steel association related to the director said.


In his view, even excluding these factors, output is indeed too high.It is necessary to call on enterprises to control the pace reasonably and maintain a rational judgment on the market.


In fact, after in view of the rapid growth of crude steel production in April, cisa secretary-general liu zhenjiang has issued a warning: "the crude steel production growth too rapidly to the market formed a greater downward pressure, don't cry because it is short time steel prices good iron and steel enterprise blindly expanding production.Profit-driven capacity expansion, violations or coaxing into electric furnaces and 'floor steel' in an attempt to revive their fortunes all require heightened vigilance.

In the first half of this year, hebei alone reduced its steel production capacity by 10.53 million tons.Some steel mills in the "2+26" cities along the beijing-tianjin-hebei air pollution transmission channel have been restricted to up to 50 percent of production.Without these reduction measures, the country's crude steel production would be higher.


"Our economy has shifted from high growth to high quality growth, and the GDP growth target of around 6.5 per cent means there is less demand for steel."Analysts said the operating benefits have improved significantly, and some enterprises have the urge to expand production capacity and increase production, not ruling out the return of some zombie enterprises that have long ceased production.If these phenomena are not stopped in time, the industry may face overcapacity again.


Industry consensus forecasts, due to the supply of iron and steel industry and there is no fundamental change, the trend of many uncertainties exist in the second half of steel downstream demand growth, thus crude steel production dropped a certain extent is a big probability event.


"Further tightening of environmental policies will curb steel production, especially during the heating season and the blue sky defense campaign, which may lead to increased production restrictions, and crude steel production will be weaker in the second half than in the second quarter."Analysts say.(source: xinhua news agency)


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