China’s Steel Production Outlook Remains Muted

Daily average output slides

Previously, we looked at how Chinese iron ore imports stayed weak last year due to lower steel production. As reported by Reuters, China’s average daily output hit its lowest level in December since March 2018. Average output and total steel production stood at 2.46 million tons and 76.1 million tons, 5% lower and flat compared with November, respectively.

China’s Steel Production Outlook Remains Muted

Record production

Despite steel production’s weakness over the last few months, China’s steel production rose 6.6% YoY (year-over-year) to 928.3 million tons last year, a record. Production cuts were not as strict as they were in 2017, and strong production, even in the winter months, caused mills’ margins to give way. However, as air quality has worsened due to higher production, authorities could impose tighter restrictions, which is limiting steel mills’ restocking.

Outlook muted

Going forward, steel production is expected to cool further as demand wanes in key sectors. China’s steel exports fell 8.1% YoY last year, to 69.33 million tons. Weakening global demand and tariffs could slow exports further, pressuring iron ore prices (PICK) and impacting stock prices for miners such as Vale (VALE), BHP (BHP), and Rio Tinto (RIO).