September global crude steel production posted a 3.7% year-on-year increase driven by China as steel mills’ utilisation rate rose. In the rest of the world, steel output remained largely negative on a year-on-year basis, still impacted by a deteriorating macro environment and the conflict in Ukraine. 

The world crude steel production was 151.7Mt in September, a 3.7% year-on-year increase. China’s output was 87Mt, a 17.6% year-on-year jump. The world ex-China production was 64.8Mt, a 10.5% year-on-year decline. For the first nine months of the year, global steel production was 1,405.2Mt, a 4.3% year-on-year decline. China’s output dropped 3.4% year-on-year during this period, and the rest of the world 5.3%. The September production showed a year-on-year drop across nearly all countries, except for China, India and Iran.

The production rise in China could appear surprising given the country’s current economic weakness. Early in the summer, a weak demand -also due to seasonality- as well as low margins drove Chinese steel mills to shut down operations and conduct maintenance works. Blast furnace utilisation rate dropped below 80% in early August. As inventories fell, and although steel margins remained close to negative territories, steel mills restarted operations in August, with capacity utilisation reaching 90% at the end of September. With winter approaching and environmental restrictions looming, Project Blue believes that China’s steel production is set to decline in the last quarter of the year.

The Chinese economy grew by 3.9% year-on-year in Q3, an improvement compared to the 0.4% posted in Q2 and bringing the year-to-date GDP growth to 3%. The bounce in Q3 was uneven, led by industrial production (mostly automobile manufacturing), infrastructure spending and exports. Domestic consumption remained impacted by the ‘zero-COVID’ policy while newly built house prices kept declining in September for the fifth consecutive month.

The 20th Communist Party Congress, held last week, brought little positive news. Any short-term relaxation of the ‘zero-COVID’ policy looks unlikely, implying a perduring anaemic domestic consumption. No relief is in sight for the property market, which overall accounts for about 25-30% of GDP. Also, exports are expected to trend downwards, in line with a global macro deterioration.

Steel production and economic activity are closely correlated. For different reasons, the economic prospects are not encouraging both in China and in the rest of the world at least for the first part of 2023. Therefore, Project Blue believes that China’s September bounce in steel production will be short-lived.