China's crude steel output in Jun shrugs off environmental probes

SHANGHAI, Jul 17 (SMM) – While widespread environmental inspections including local initiatives resulted in various degrees of production limitations across China in June, the country managed to produce record high crude steel on an average daily basis.

Data from the National Bureau of Statistics (NBS) showed that the daily output averaged 2.67 million mt last month, and the June production, at 80.2 million mt, was up 7.5% year on year. Pig iron output last month was also 3.8% higher than a year ago.

SMM believes one of the reasons was because the production limitations in June mainly targeted sintering and pelletising processes. This had limited impact on crude steel production as mills chose to purchase such materials externally and raised the proportions of lumps into their furnaces.

The commissioning of new independent electric arc furnace (EAFs) capacity and higher proportions of better-quality raw materials, including scrap, also bolstered the output of crude steel.  

Thereotically, pig iron output could grow 3% when the grade of iron ore into blast furnaces increases by 1% Fe. Coke ratio could also go down by 2%.

With an average profit at 829 yuan/mt for crude steel in June, and above 800 yuan/mt for quite some time, according to SMM calculations. Steel mills were keen to use high-grade lumps to chase the margins.

Surges in coke prices also forced mills to raise the grade of ore. Grade II metallurgical coke in Tangshan rose 39% in just over a month to 2,320 yuan/mt in mid-June.

The current grade of sintered ore into blast furnaces stood at around 56% Fe, 0.3 percentage point higher than the same period last year.

However, we see limited upward room in the grade of sintered ore into blast furnaces due to the wide price spread between high- and low-grade materials. The spread between Carajas fines and Super Special fines exceeded 400 yuan/mt in Tangshan. This could impact output addition.