China changes rules to cut production

This winter, China will not repeat last year's production cuts in heavy industries such as metallurgy. Local authorities are empowered to decide how to achieve emission targets during the winter heating season, which runs from November to March.

The steel market was not very happy about the news.
Hot rolled coil prices fell to two-month lows on Friday on the Shanghai Futures Exchange. The fear is that steel mills in China, which are already operating at increased speeds, will continue to smelt metal during seasonal weak times for demand.

This threatens to flood the domestic market, and as a result, there is a danger that more Chinese steel products will spread to the rest of the world.

Falling exports from China, the world's largest steel producer, have underpinned a global recovery in the steel market.

Steel tariffs and European “safeguards” against Chinese steel are now starting to play a role, and China's exports have been falling since late 2016.

This came amid the closure of steel mills in Beijing and a reboot of demand from the construction sector - and its war on smog.

This is why the apparent relaxation of winter heating season rules will affect the steel pricing chain.

Should the rest of the world's manufacturers start to worry?

There is no doubt that the forced cuts last year in 26 cities surrounding Beijing and Tianjin led to a decline in national steel production.

Production declined year-on-year in November and December, according to the National Bureau of Statistics. Compliance was mandatory and there was an apparent reduction in pollution in the problem area.

These rules will change in the coming winter. Each plant will be judged on its merits. Those that meet emission standards are not required to cut production at all