What’s new: Steel refineries in southwest China’s Yunnan province have begun slashing production in the hope of mitigating expanding losses amid weak demand and rising costs.
According to the Yunnan Iron and Steel Association, its member companies have been coordinating production control efforts to limit losses since the start of March, with a planned reduction in total construction steel production of 500,000 tons.
Kunming Iron & Steel Holding Co. Ltd., the largest steel producer in Yunnan, plans to reduce production by 150,000 tons in March with a 10 to 13-day maintenance shutdown of one of its blast furnaces, according to the association. The planned reduction amounts to about 2.5% of its annual production based on 2022 figures.
Kunming Iron & Steel booked a 1.3 billion-yuan ($180 million) net loss during the first three quarters 2023.
The association said the production cuts are to address the widening losses in Yunnan’s steel industry due to the weaker-than-expected recovery of market demand after the Chinese New Year holiday and the rising costs of ore and coal.
Why it matters: The situation in Yunnan highlights the challenges facing the steel industry squeezed by sluggish demand from the real estate industry, said Xu Xiangchun, chief information officer at Mysteel.
“High-cost steel mills are the first to buckle,” Xu said. As an inland province, Yunnan faces higher production costs for iron ore and coke, alongside a more isolated market with low demand, he added.
In 2023, steel mills in Yunnan produced 21.2 million tons of crude steel, accounting for 2.1% of the country’s total.
Beyond Yunnan, steel market demands have remained weak nationwide as inventories in steel companies are continuing to rise, Xu added.
In 2023, major steel companies reported a total profit of 85.5 billion yuan, a 12.47% decrease from the previous year. Average sales profit margin was 1.32%, down by 0.17 percentage points, according to the China Iron and Steel Association.
The industry is also grappling with significant profit disparities, predominantly favoring large steel factories, while the majority of medium and small steel mills struggle to make a profit, said Xu.
Contact reporter Han Wei (weihan@caixin.com)
