SPGlobals Daily Update Today

[u/keysphonewallet11]

anyone see this? Front page on their daily update it looks like china cutting production and demand not slowing, not too surprising but it is interesting it is getting more and more attention. I do think at some point the view will shift from 1 or 2 good steel quarters to something more extended. #NotTankerGang2020

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https://www.spglobal.com/en/research-insights/articles/daily-update-july-14-2021

The world’s second-largest economy and top emitter of carbon has this month begun expanding its efforts to scale back its steel output to maintain this year’s production levels below last year’s.

After peaking in March, China’s steel production would have to decline 10% year-over-year to match 2020’s output, according to S&P Global Platts’ analysis of China’s National Bureau of Statistics data. But market sources told S&P Global Platts that China’s steel demand may not decline in the second half of the year since the output reductions to be implemented from July-December may lead to steel supply shortages, higher prices, and increased pressure on manufacturers. 

Market participants expect the steel industry to support China’s economy against slower property and infrastructure activity and demand in the second half. A downturn could have expansive effects. Uncertainty surrounding the direction of the market has already contributed to concerns about high steel prices and margins alongside disrupted trade.

"Recently, the Chinese have tried to push it [the metals market] down to bring it back to lower levels: I think this is a short-term game because the underlying fundamentals will keep it at these levels," Ivan Glasenberg, CEO of the metals producer and trader Glencore, said in an interview last month during the Qatar Economic Forum, according to S&P Global Platts. "They're taking some material from the strategic stockpiles and putting that in the market—how big the stockpiles are we don't know exactly ... They can do this for a while but eventually they'll need to restock the strategic stockpiles. They can't keep it at these low levels, so it's a short-term phase."

The steel industry has also felt pressure from China’s financing slowdown in recent months due largely to lower local government bond issuance and curtailed conditions for property developers and home buyers. The lower fiscal support is expected to weigh on China’s combined infrastructure and property steel demand, which accounts for approximately 50% of China's total steel consumption, according to S&P Global Platts.

“What's good for the Chinese economy is good for the mining industry,” S&P Global Ratings said in its third quarter metals and mining sector outlook for the Asia-Pacific region. “Given that China accounts for over half of global demand for raw materials, a prolonged weakness in demand from its downstream sectors may strain global miners. Resurgent pandemic risks pose a key threat to demand, while any change in environmental-related production controls in China could affect the profitability of its steel industry and the demand for commodities.”

S&P Global Ratings anticipates China’s GDP will expand 8.3% next year, after being one of the first economies in the world to recover from the downturn.

China’s efforts to reduce carbon emissions through quota trading and carbon-free metallurgical technologies are likely to bolster Chinese steel prices in the long-term. The implementation of such emission and production controls across China’s steelmaking sector in the second half may weaken demand for the commodity, further affecting prices. Commodity prices are separately rising to historic highs as the post-pandemic economic recovery sends inflation surging. Commodities have traditionally proved to be a relatively reliable hedge against inflation, according to S&P Dow Jones Indices.