QINGDAO, China (Reuters) – China’s steel mills are slashing order books, curbing iron ore purchases and bracing for lower revenue as the government forces factories across the north to halve output this winter in Beijing’s intensifying war on smog, executives have said.
The moves come after Beijing ordered 28 northern cities, including some in top steel-producing Hebei province, to clamp down from November to March on heavy pollution that blankets the region as homes crank up midwinter heating, drawing on the nation’s coal-fired power.
HBIS Group, China’s No. 2 steelmaker, has already turned away business in the run-up to the shutdowns, vice president Liu Jian told Reuters. “We have made some preparation ahead, for instance we have reduced the number of orders we accepted,” said Liu, speaking on the sidelines of a conference in Qingdao this week organized by the China Iron and Steel Association.
In other drastic measures, an iron ore trader, based in Hangzhou in eastern China, said his company has cleared its stock on expectations that prices will fall sharply ahead. Demand for steel and other heavy metals also tends to slow during the winter when construction activity is lower.
Many executives say they are still unsure how each city will enforce the Beijing-mandated restrictions, just weeks before the cuts are scheduled to come into force.
But the fact that mills in the world’s top steel producer are putting measures in place for the winter chill will likely send an icy blast across the global steel market.
China’s iron ore, coke and coking coal markets already plunged into bear territory this week, having fallen more than 20 percent over the past month amid growing concerns about slowing demand during the winter. The most-active futures were down more than 3 percent at 449 yuan per ton, their lowest in two and a half months on Thursday.
Mills have churned out record tonnages of steel in recent months in a bid to offset the cutbacks ahead. Dozens of smaller, private mills unable to meet tougher environmental standards have already been shut.
But if all 28 cities covered by the restrictions slash production by 50 percent, around 45.67 million tonnes of crude steel output will be lost, said Cao Ying, analyst at SDIC Essence Futures. That’s equal to nearly 6 percent of China’s 2016 output.
Demand for iron ore would decline by 77.65 million tonnes, representing almost 8 percent of China’s 2016 imports, Cao…