Why is 2018 Chinese pig iron, crude steel and steel still increasing at the end of production capacity?

SMM News: the National Bureau of Statistics released data today. In December 2018, the national output of pig iron, crude steel and steel was 63.2 million tons, 76.12 million tons and 93.65 million tons respectively, an increase of 9.4 per cent, 8.2 per cent and 9.1 per cent respectively over the same period last year. The daily output of crude steel was 2.4555 million tons, down 5.1 per cent from the previous month.

1. Why is production still increasing near the end of the capacity task?

The national task of resolving the excess capacity of 1.4-150 million tons of crude steel during the 13th five-year Plan is nearing the end, and China's crude steel capacity will drop to 985 million tons by the end of 2018. In 2019, the market will focus on Hebei Province's own task of further resolving about 30 million tons of iron and steel production capacity from 2019 to 2020. Assuming the average distribution of Hebei de-production tasks in the next two years, the annual crude steel production capacity will be reduced by 14.33 million tons, then the national crude steel production capacity will fall to 971 million tons by the end of 2019 and 957 million tons by the end of 2020.

SMM iron and steel analysis believes that driven by the peak demand season and high profits, steel mills are still producing at full load under conditions permitted by policy. At present, the technology of adding scrap to blast furnace is becoming more and more mature, and the capacity utilization rate of steel mills is increasing. In addition, steel mills can also increase steel output by adjusting the grade and proportion of iron ore.

2. There was a large increase in steel demand in 2018

Li Xinchuang, president of the Metallurgical Industry Planning and Research Institute, believes that from the demand side, there are three main reasons for the large increase in steel demand in 2018:

First of all, the rapid growth of investment in real estate and manufacturing industry has driven steel demand. From January to October 2018, investment in real estate development nationwide totaled 9.9325 trillion yuan, an increase of 9.7 percent over the same period last year, up from 3.6 percent in 2017. Fixed asset investment in manufacturing rose 9.1 per cent, up from 4.8 per cent in 2017.

Secondly, the market demand released after the ban of "ground bar steel" is gradually included in the statistics. Before 2017, some of the output of "ground bar" was not included in the statistics, and the market demand released after the ban of "ground bar steel" was filled by the products of legally compliant iron and steel enterprises. The 2018 crude steel production data more fully reflect this part of the output on the basis of 2017.

Third, the rapid growth in exports of mechanical and electrical products has led to an increase in indirect exports of steel. From January to October 2018, China's exports of mechanical and electrical products totaled 7.8 trillion yuan, a sharp increase of 20.3 percent over the same period last year, an increase of 9.8 percentage points over 2017. one of the main reasons is that some enterprises have stepped up their exports before the new round of tariffs imposed by the United States. Some of the exports in 2019 were overdrawn.

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