The China Iron and Steel Association (CISA) has asked steel mills to limit exports of lower grade steel products. The association asked domestic mills to adjust export strategies and consciously lower volumes to make sure domestic supplies remain unaffected.

 

Amid the ongoing production cuts to achieve China’s carbon emission targets, there is a possibility that tight domestic steel supplies could raise prices, contrary to the government’s efforts to control commodities prices in the domestic market. 

 

The apex steel body suggested trading, indenting houses and steel mills to actively adjust their export strategies and consciously lower total export volumes.

 

Export firms in China are influenced by high global demand and a surge in prices. Overseas shipments earn more profits compared to domestic sales. The association said in a statement that export firms must resist the temptation and focus only on high-end, specialty product exports and avoid exporting ordinary products.

 

Exports rise

China adjusted export tariffs twice this year, first in May and again in August. Export tax rebates were canceled for around 170 products. Despite this Chinese steel exports rose to 43.05mn mt in the Jan-July period, up by 30.9pc from the prior-year period.

 

In August, lower demand due to slower economic activities and the resurgence of COVID-19 weighed down iron ore imports and domestic finished steel prices. Growth was also impacted due to floods in the Henan region.

 

Prices plunge

Steel prices fell by over CNY200-300/mt through this week, while iron ore import prices plunged to more than a five-month low to reach $130/mt cfr north China for 62pc Fe spot iron ore. Iron ore prices lost over 40pc or $100/mt from above $230/mt cfr China levels in May. 

 

Yet for the rest of the year 2021, slower demand and reduced steel output could stabilize domestic steel prices and keep them rangebound, added CISA. 

 

The Chinese government has vowed to keep crude steel production in 2021 at or below the record 1.065bn mt output in 2020. Lower production has started to deplete finished steel inventories in China, which could keep prices firm through 2021. In early August (Aug 1-10), finished steel inventories of large and medium producers of 20 cities in China were at 11.91mn mt, down 120,000mt from a month prior. 

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