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Chinese Steel Production: Will We See Curtailments This Year?

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Dec. 4 2020, Updated 10:52 a.m. ET

Chinese steel production

Previously in this series, we looked at China’s steel demand indicators. It’s also important for investors to look at the supply side of the equation. In this part of the series, we’ll explore how much steel China (MCHI) produced in July 2016.

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Production rises year-over-year

China produced 66.8 million metric tons of steel products in July 2016, according to data released by China’s National Bureau of Statistics. This represented a YoY (year-over-year) rise of 0.8%, and it was the fifth straight monthly rise in YoY steel production.

Prior to this, Chinese steel production fell YoY in January and February 2016. This was preceded by a 2.3% YoY fall last year. Notably, 2015 marked the first time since 1981 that Chinese steel production had contracted on a YoY basis.

During its 2Q16 earnings call, ArcelorMittal (MT) pointed to higher Chinese steel production as a threat to the steel industry.

Cause for concern?

For investors, higher Chinese steel production isn’t a cause for concern if said production stays in China and is consumed domestically. However, Chinese steel demand indicators weren’t great last month, as we noted in the previous article.

The end result is China’s supply and demand gap, which prompts its domestic steel companies to export their excess production to overseas markets. Steel companies including U.S. Steel Corporation (X), AK Steel (AKS), and Nucor (NUE) are negatively affected by rising Chinese steel exports.

Earlier this year, China announced plans to curtail its excess steel capacity. It has reiterated that commitment several times. However, despite these commitments and friction with several of China’s trading partners, Chinese steel production and exports have refused to die down.

In the next part of the series, we’ll see how Chinese steel prices are reacting to demand-supply dynamics.

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