SHANGHAI, Aug 10 (SMM) – A fresh round of production cuts in Tangshan lowered the operating rate of blast furnaces across China's 110 steel mills in July.

The rate averaged 86.37%, down 0.65 percentage point from June, SMM data showed.

A cut of 30-50% cut was imposed on all blast furnaces in Tangshan, Hebei province, on July 20, as part of the local government's effort to improve the city's air quality.

The impact of the cuts turned out to be less significant as expected, as mills in Tangshan had already implemented some cuts that were required in the non-heating season.

Recovery of operations across Shandong and Jiangsu provinces after Beijing’s environmental reviews and the Shanghai Cooperation Organisation (SCO) summit also buoyed operating rates.

SMM expects the blast furnace operating rate to extend its decline, down 1.13 percentage points to 85.4% in August in anticipation of larger or new cuts for the Blue Skies initiative. Mills in Tangshan, Handan and Wu’an, Hebei province, are likely to further lower production and mills in Shanxi, Shaanxi and Henan provinces are likely to face cuts.

Steel supplies have taken a hit from widespread production cuts but managed to remain at high levels as mills raised the grade of ore fed into blast furnaces or increased the proportion of steel scrap to maintain output.

Newly-commissioned or recovering electric arc furnace capacities are also helping to offset the output decline from the production cuts.

Steel prices are expected to remain at highs in August as current demand remains strong and as stocks have not accumulated.