2 Real estate regulation will affect the sales of steel industry

In February this year, the real estate market showed signs of recovery, and China's steel production hit a new record high. This development seems to challenge the efforts of Chinese authorities to curb overcapacity in the steel industry, which has long been seen as a loss-making sector. According to data released by the National Bureau of Statistics, China’s crude steel output rose by 9.8% last month, reaching an average of 2.21 million tons per day. This broke the previous record of 2.05 million tons/day set in January, and surpassed the 1.86 million tons/day recorded in December last year. The steel industry appears to be benefiting from a gradual recovery in key consumer sectors such as real estate and automobiles. Data from the Bureau of Statistics showed that fixed-asset investment grew by 21.2% year-on-year in January and February. Meanwhile, the China Association of Automobile Manufacturers reported that new car sales during the Lunar New Year period increased by 15%. Henry Li, a commodity researcher at Future Asset Management, noted that after the Lunar New Year holiday, many new infrastructure projects are expected to kick off across the country. This anticipated demand is also driving up the production of related materials like cement and copper. China, the world’s largest steel producer and consumer, has also seen a steady rise in steel exports. In February, steel product exports increased by 25% year-on-year to 4.24 million tons. Although this marked a slight decline from the previous month, it was the 12th consecutive month that exports exceeded 4 million tons. The record-breaking steel output in February is particularly notable given the timing, as it includes the Chinese New Year holiday. The surge in production suggests that steel mills are trying to take advantage of higher prices to boost sales, even though prices remain low. According to a report by the Wall Street Journal, despite a rise in steel prices in February, many steel mills still faced losses. While iron ore prices hit a 15-month high, some steel producers were selling steel at a loss of 300 yuan per ton. China’s steel production capacity exceeds demand by about 35%. According to a recent report by the China Iron and Steel Institute, the country produced 970 million tons of steel last year, but only 717 million tons were actually consumed. Efforts to cut overcapacity and consolidate the industry have been ongoing. Hebei Province, the largest steel-producing region in China, accounts for more than a quarter of the country’s total steel production capacity. It aims to reduce output by 60 million tons this year. However, this goal faces significant challenges. Wang Yifang, a top executive at Hebei Iron and Steel Group, one of China’s largest steel producers, stated that the company has no plans to cut production. “Reducing 60 million tons is just a government target,” he said. “We will produce according to market demand.”

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