China’s production in September fell by close to 20 percent year on year (YoY) and around 11 percent month on month (MoM). This, however, is positive for steel companies as it points to structural changes that are likely to be seen in the global steel environment, which has been the key focus for many months.
The iron ore futures prices are down by close to 5 percent because lower steel production means lower iron ore consumption. However, the big takeaway is China delivering on its promise of lower steel production.
Chinese authorities have instructed steel companies to maintain crude steel production below 2020 levels. In 2021 so far, Chinese steel production is around 802 million tonne, which is 2.5 percent higher YoY. However, to maintain that flattish number in 2021, production will have to be lower by nearly 19 million tonne for the next three months.
This will be read positively and steel stocks will react accordingly.
Watch the accompanying video of CNBC-TV18’s Nigel D’Souza for more details.