As steel demand continues to wane and steelmakers face huge losses amidst poor steel margins, several mills have cut production levels, while others have plans to do so very soon.
A major Shandong-based mill was said to have idled a blast furnace three weeks earlier when demand began to fall. "The mill took the blast furnace offline in order to cut production, not to carry out maintenance," a trader who procures material for the mill said.
"Today we have received more news that other mills in the country have cut production levels too," he added, but did not identify the mills.
Mid-sized mill Shandong Shiheng said they had not reduced their production levels yet, but planned to do so soon. "The mill will probably cut output by a little over a third of total capacity," a source with knowledge of the matter said.
"Steel demand is really poor now so mills in the Shandong area will have to cut output. There's no other way," the source added.
Market participants also said that steel demand being so low, it made sense for mills to conduct maintenance of their blast furnaces.
"We have no concrete plans to cut steel output levels but we might push forward the planned maintenance schedule of one of our four blast furnaces," a Hebei-based mill source said.
He described the timing as "perfect" as there had been some problems with the blast furnace in question, and being able to reduce output "coincided well with [its] plans."
While an industry source said Hebei-based steelmaker Jinxi Group was one of the mills that had cut its output, a company source said it had yet to do so.
"We will probably cut production in the near future, but as of now we have not received any directive. If that happens, we will lower the amount of steel we produce, but will not idle any of our blast furnaces," the source said.
Most steel mill sources attributed the need to cut production to the seasonal summer lull as well as the weakening global economy. The summer heat and rainy weather have been causing difficulties in the construction and infrastructure development industries, and the situation became worse in the later half of July.
Steel, most commonly used in building projects, has a close relationship with the construction and real estate industries. A decline in productivity in these industries dampens the appetite for steel products, affecting demand for iron ore, the primary steelmaking raw material.
China imported 58.3 million mt of iron ore in June, down 9% from the previous month.