The international ratings agency Fitch Ratings said that it expects the steel production decrease in China in H2 due to weaker construction growth, falling margins at mills and restrictions due to the environmental policy. Though Fitch Ratings did not disclose the amount of expected decline, it underlined the decline will be significant.
In H1 crude steel output went up by 9.9 percent reaching 492 million mt, according to NBS. If China cuts H2 production by 5 percent compared to H1 it will result in about 25 million mt drop, SteelOrbis understands.
The main reason for the operating performance decrease will be slowdown in the construction segment till the end of the year. “Fitch expects housing construction growth to slow in 2H19, particularly in lower-tier cities, which will be a drag on FAI growth into the sector on a yearly basis. This, however, might be partially offset by a pickup in infrastructure FAI,” the agency said. Moreover, restriction will still be in place and steel margins continue to be squeezed for the rest of the year. In H1, profit in the steel industry went down by 20 percent, according to the China Iron and Steel Association (CISA).
Nevertheless, most other analysts doubt that the crude steel output in China will be in line or lower than in 2018. Moreover, news about easing of monetary policy of the People Bank of China, appeared recently, baked expectations that Chinese mills will try not to lose their market share, if domestic demand will be supported.