What factors led to the decline in steel production?1. Restriction of production. The Chinese government is taking strict measures to limit steel production to 2020 levels in an effort to reduce industrial carbon emissions and improve air quality. For example, in early July, the authorities of Jiangsu and Anhui provinces ordered steelmakers to maintain crude steel production in 21st year at the 2020 level. Moreover, in Tangshan, a major steelmaking center in China, phased production restrictions have been in effect since March this year.
2. Cancellation of the export discount. The Chinese authorities have also used an export rebate adjustment to restrict production. In this regard, in May 2021, the export discount was canceled for 146 steel products, including hot-rolled steel, one of the most exported goods. After that, by the end of July 2021, the export discount was canceled for another 23 items, mainly for cold-rolled coils, galvanized steel, silicon steel and several other items. This, in turn, led to a decrease in finished steel exports in July. Exports fell to 5.68 million tonnes in July 2021, down 12% from 6.46 million tonnes in June 2021.
3. Upcoming Export Duty Declaration. The market is still buzzing about the export duty on hot-rolled steel coils of about 10-15% or more since the end of May'21. As a result, China's average monthly export offers for hot-rolled coils increased by USD 18 / t to USD 962 / t in July 2021, compared to USD 944 / t a month ago. In addition, the mills have included a clause stating that “buyers bear any export tax losses,” which keeps importers on the sidelines.