From Macquarie:
With 18 environmental inspection teams from the central government currently working in Hebei, Henan and Shandong and two important government meetings in early March, environmental regulation is top of the agenda again in China. With this, local governments in Hebei province have been reportedly ordering local steel mills to cut production again. Chinese media reported that Tangshan, the major steel city in the major steel province, has ordered mills to cut sintering furnaces production by 50%~100% from 1st – 15th March, asked coke plants to delay the coking process, and requested rolling mills to suspend production. As Hebei produces 23% of China’s crude steel, in anticipation of steel supply disruption futures prices jumped on SHFE today, with rebar rising by 4.7% and HRC by 5%. As we wrote in our recent note, environmental inspection will be a significant influence on the Chinese, and therefore global, steel market this year.
The latest ten-day CISA statistics shows China’s major steel mills daily crude steel production increased by 6% in early February from late January, reaching to the highest operating rate since last December. At the same time steel inventory among those major mills climbed by 1.8% over the same period. Similar to steel inventory at the traders, steel mills stocks normally go up from January to March when downstream demand recovers seasonally. A positive signal is that last week Mysteel traders steel stocks slightly dropped by 1% WoW, after rising for three months, suggesting there may be improved demand from end-users three weeks after the Chinese New Year holiday.
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