How to correctly understand the steel industry to reduce output?

On July 30, the Political Bureau of the COMMUNIST Party of China (CPC) Central Committee made it clear that the campaign to reduce carbon emissions should be corrected.For a time, many market people regard the steel industry's output reduction work as a movement of "carbon reduction".The author believes that this judgment is not in line with the actual situation, the steel industry output reduction is not a movement of "carbon reduction".

First of all, the steel industry to reduce output from the strategic height of the new development pattern of behavior.

Since last year, the Central Committee of the Communist Party of China and The State Council have proposed to adhere to the principle of domestic demand, and build a new development pattern with domestic circulation as the main body and domestic and international circulation promoting each other.For a long time in the past, on the one hand, the steel industry imported a lot of raw materials such as iron ore.Especially in the past two years, under the circumstances of the COVID-19 epidemic and the slow recovery of the global economy, the price of imported iron ore has been hitting record highs, and has been at a record high for a long time. The price of 62% grade Australian ore was as high as us $222.2 / ton at one time.Steel mills, on the other hand, keep a lot of carbon dioxide in the country through smelting and rolling.Based on estimates of carbon dioxide emissions from long-process steel mills, producing and exporting steel last year emitted about 11 million tons of CARBON dioxide.Last year, China exported 53.67 million tons of steel.In the first half of this year, China exported 37.38 million tons, an increase of 30.2%.Such "big imports and big exports" are neither economic nor rational, nor in line with the requirements of domestic demands-based development.The author estimates that if 30 million tons of steel can be produced less a year, about 50 million tons of iron ore can be imported less, and the iron ore price will greatly return to a reasonable level.Therefore, it is imperative to limit production.

Second, the main purpose of the steel industry to reduce production is to prevent iron ore prices from rising sharply.

Since the end of 2020, relevant ministries and commissions have proposed to implement the policy of "double control" on production capacity and output.Then, the country in 2020, released on December 31, about specification recycled steel raw material import management related matters, and released in April 26, the announcement of 146 kinds of steel cancel the export tax rebate, also released on July 28, of 23 kinds of steel, cancel the export tax rebate, announcement of three imposition of export duties.The introduction of these policies, to a certain extent, inhibit the direct export of steel.Otherwise, in the first half of this year, the price difference between domestic and foreign steel on the background of a huge, steel exports may grow faster.In the second half of the year, with the decline of foreign steel prices, the adjustment of import and export tax rates will be conducive to promote the rebalancing of import and export resources, promote the export to domestic sales, for the second half of the steel enterprises independent production cuts paved the way for resource rebalancing.

Finally, the steel industry is in a more appropriate time to reduce output.

In June, with the decline in domestic steel demand, steel inventories continued to increase, steel prices since the middle of May after a sharp fall began to low concussion, some regional steel enterprises of the variety of losses.In order to ease market pressure and prevent the industry from falling into overall losses, some state-owned steel companies have joined the ranks of production restrictions.This can be seen from the trend of the gradual decline in weekly output of the five varieties since the beginning of July.At the same time, the price of iron ore has also dropped to a certain extent, falling around $40 / ton.

According to the relevant report, it can be seen that the production restriction is carried out under the unified deployment of the country, its main purpose is to restrain the inflated iron ore price, resulting in a sharp rise in the steel price of China, causing imported inflation, and downstream transmission;The ultimate goal is to prevent CPI (consumer price index) from rising sharply and reduce the purchasing power of our people.The reduction work follows the principle of "two limits, two limits, three can" to ensure survival of the fittest, quantity and quality.From the practical effect, when the production limit became the consensus of the industry, iron ore prices were significantly lower, steel prices stabilized, and run within a reasonable range.

Iron and steel industry production reduction work is strictly implemented from top to bottom according to the central deployment, steel enterprises will unswervingly carry on this work.However, in view of the complicated economic situation at home and abroad, production restriction still needs to strengthen guidance to prevent deviation.

In short, the author believes that the Political Bureau of the CPC Central Committee meeting of the movement of "carbon reduction" has nothing to do with the steel industry to reduce output, later steel enterprises will still take strict measures to limit production.