Top steel city Tangshan set to cut output amid Covid disruptions: sources

[BEIJING] Steel producers in China's northern city of Tangshan are likely to have to cut or suspend production in the coming days because of the difficulties getting raw materials, sources said, as transportation comes to a standstill following fresh Covid curbs.

Tangshan in Hebei province implemented a temporary lockdown on Tuesday (Mar 22), urging residents to stay at home except for tests or emergencies, after the city detected locally transmitted Covid-19 cases for 4 straight days.

The latest curbs hindered steel mills from replenishing raw material stocks and piled up steel products at warehouses, company officials said.

Tangshan produced 131.11 million tonnes of crude steel last year, accounting for some 13 per cent of China's total production, surpassing the world's second-biggest steelmaker India, which made 118 million tonnes of the metal in 2021.

A sales manager from Hebei Tianzhu Iron & Steel, with production of about 200,000 tonnes per month of strip steel, said the company's raw materials inventories can feed production for only 3 more days.

"It is for sure we have to cut production soon," said the manager who asked to be identified only as Cui because of the sensitivity of the matter.

The company has stocked around 40,000 tonnes of steel products in its warehouses, which can store a maximum of 70,000 tonnes, Cui said, adding their inventory levels are typically around 5,000 tonnes.

Another local producer, Tangshan Reafon Steel, told Reuters that it is also expected to cut output soon due to transportation constraints while "it is hard to coordinate with government to resolve it".

Average daily output for molten iron in Tangshan had dropped by 36,100 tonnes this week, according to Mysteel consultancy, down from an average output of 260,000 tonnes before the lockdown.

"Many steel producers in Tangshan are privately owned, they need to maintain a high turnover to ensure sufficient cash flow," said Zhang Shukun, director of the asset management department with trading firm Hebei Wenfeng International Trading.

Producers normally only stock raw materials sufficient for a week's production to reduce capital exposure, Zhang added.

Similar stringent measures to keep Covid cases down have also been adopted by other city and provincial governments such as in Jilin, Shandong, Guangdong and Shanghai.

This adds to the woes of steel producers - mostly in the northern part of the country - as production had already been falling since June because of environmental curbs and the Winter Olympics.

Demand for the industrial metal has not picked up in the traditional peak season in March and April because construction has been sluggish.

Gross profit margins for per tonne production of steel rebar have dropped 56 per cent so far this year and were down 73 per cent from the peak last May, data compiled by Mysteel consultancy showed.

Hot rolled coils profit margins fell 38.6 per cent in 2022 as of March 23 and have plunged 72 per cent from mid-May 2021.

"China's property and infrastructure sectors may recover in the second and third quarter as Beijing vows to stabilise its economy, but the real demand would depend on the outbreak," Zhuo Guiqiu, analyst with Jinrui Capital, said. REUTERS