As several sources have reported, the Tangshan steel region in the northern Chinese province of Hebei has restricted steel production for a few days due to air pollution. Tangshan is one of the most important steel producing regions in China. And as a result also exposed to severe environmental pollution (Source).
Steel production curbed to improve air quality
Local authorities asked steelmakers to curb steel production for three days last week. This is to achieve an improvement in air quality. The last time the Tangshan government imposed such a measure was in 2017.
Iron ore prices react sensitively
Iron ore prices reacted almost immediately, falling by around 7.5% from their current all-time high, according to media reports (Source). They have since recovered slightly, and spot iron ore was trading back at a stable level of $166 per ton on March 11, 2021.
But what impact will this have on inventories and steel prices?
Three days of curtailed steel production doesn’t sound too bad at first. But since not only one blast furnace but at least seven plants of four steel producers were curbed at the same time, the effect on availability is likely to be significantly higher.
Argus writes that according to analysts, the loss per day is likely to have been between 5.000 and 12.000 MT of crude steel (Source).
In addition, truck quotas in the region for March 2021 have been reduced by 50%.
The current market situation, the already tight availability and the high demand should do the rest.
Questions about the future of Chinese steel that are currently still open here
- How will China proceed in the future in the war against pollution? The new 5-year plan at least points in the direction of a desire for a greener future.
- And what impact will it have on the global economy if there is a further shortage of Chinese steel?
- Will more Chinese steel mills then be built in African countries to possibly shift the problem?
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