Will China’s production cut affect the steel market in 2022?

Steel exports – China fell in 2020 due to reduced global demand caused by Covid-19. According to the data, China exported 53.67 million metric tons (MMT) of steel in 2020, down 16.5% compared to 2019.

According to the November 2021 update of the World Steel Association, China is the largest producer of crude steel in the world, representing approximately 57% of global production.

As global economies reopened in 2021, following the easing of containment measures, there was a recovery in China’s steel exports. It delivered 61.88 MMT of steel in the January-November period, up 26.7% compared to the same period in 2020.

Steel exports – China are coming back year after year

Despite the year-on-year rebound in exports in the last 11 months of 2021, China’s steel exports have declined for the past seven years. After reaching a maximum of 112.4 MMT in 2015.

After years of rapid industrial development with few environmental regulations, China has become one of the most polluted countries in the world. As the domestic steel industry has grown to become the largest global steel producer, the sector has also contributed significantly to China’s carbon emissions.

In 2017, the Chinese government implemented strict environmental regulations to help reduce pollution levels in the country. As a result, strict limits on steel production have been imposed in many provinces.

However, despite environmental restrictions, crude steel production continued to grow in China. Exceeding one billion tons in 2020.

Ahead of the 2022 Winter Olympics, China is expected to reduce its industrial activities to reduce smog levels in the country. Just as he did before the 2008 Summer Olympics in Beijing.

The declining Chinese real estate market will affect the steel sector

In September 2021, the debt crisis of Evergrande – one of the largest real estate developers in China. It appeared after the group missed its loan repayment deadlines. Evergrande borrowed billions to finance its growth over the years and struggled to keep up with interest repayments. The drop in property sales in China has worsened the group’s cash flow.

The consequences of the Evergrande debt crisis would have a major impact on the Chinese economy. And it could lead to the collapse of the domestic real estate market. The group’s shares and bonds are included in funds across Asia. And any non-payment by Evergrande could trigger a chain reaction that would affect banks, suppliers, home buyers and investors.

The downturn in the Chinese real estate market is putting pressure on domestic steel production. Because steel is used in the construction of buildings and infrastructures. However, despite growing concern about the potential collapse of China’s real estate market, investment in the sector continued to grow.

Decarbonization reduces China’s steel production Steel sectors directly emit 2.6 gigatons (GT) of CO2 annually. Representing 7% of the total global emissions from the energy system, according to the data. The Chinese government published its action plan on carbon emissions until 2030 on October 24. As part of the plan, the government implemented energy-saving and carbon-reduction policies in key industries. From the energy, steel, non-ferrous metals, construction materials, petrochemical and chemical sectors.

In response to the emissions policy, Chinese steel mills cut production in the fourth quarter of 2021. In November, China’s crude steel production fell to 69.31 MMT. Being down 22% compared to the same month of 2020. Production in the January-November period fell to 946.4 MMT, down 2.6% compared to the previous year.

Article source https://capital.com/steel-price-forecast