Steel mills in China’s southwestern Yunnan province have been asked to prepare to cut back production to meet a government mandate on capping 2023 output at last year’s level, two Chinese consultancies said on Friday.
The orders, reported by Shanghai-based consultancies MySteel and Fubao, follow similar instructions issued to mills elsewhere earlier this week, weighing on iron ore prices.
According to Fastmarkets MB, benchmark 62% Fe fines imported into Northern China were changing hands for $110.07 a tonne Friday morning, down 3.58%.
The most-traded September iron ore futures contracts on the Dalian Commodity Exchange closed daytime trading 2.68% lower on Friday at 834.5 yuan ($116.56) per metric ton, the lowest since July 13.
The instructions to Yunnan mills cited by MySteel were the same as those outlined in what appeared to be an official document from Yunnan’s Development and Reform Commission, widely shared among industry participants on Friday, according to Reuters.
China has mandated zero output growth in its steel sector for the last two years as it seeks to limit carbon emissions by one of its most polluting industries.
In both 2021 and 2022, the state planner announced the zero growth target in the second quarter, but no announcement has been made so far this year.
Steel output in the first half has grown 1.3% compared with last year to 535.64 million metric tons, according to government data, so production will need to fall in the second half if Beijing wants to cap output at 2022’s level.
Yunnan accounts for around just 2% of China’s steel production but analysts said the news reinforced sentiment that a nationwide production cut was looming.
($1 = 7.1592 Chinese yuan)
(With files from Reuters)
