No significant increase in steel prices is expected in the 4th quarter

Production cuts are affecting the third quarter profit growth of steelmakers in China.

Shougang, Shagang and eight other Chinese listed steel companies announced their still high first three-quarter earnings. Net profit attributable to the parent company saw significant year-over-year growth.

In the third quarter alone, the annual growth rate of net profits of steel businesses overall slowed, and individual businesses even saw a year-over-year decline in their net profits.

Industry officials said the Chinese steel industry has cut production since the third quarter even more than the market is expected to meet the country's energy consumption targets.

Although the recent high steel prices and the decrease in raw material costs of steel production profits continued, the decline in steel production and sales in the third quarter caused the growth in steel revenues to slow down.

Price increase is limited

According to some producer sources, China's crude steel output is expected to show a downward trend for the remainder of 2021, as production cuts are political missions for steelmakers.

However, even if the cuts are extended further in the fourth quarter, steel prices are unlikely to increase significantly, partly because falling iron ore prices have reduced production costs and partly because the steel market has felt the impact of the slowing real estate market.

The slowdown in the real estate sector as a result of the tightening of loans to this sector may lead to a year-on-year decline in the demand for real estate steel in the second half and may also negatively affect the manufacturing of engineering machinery.

Some steel traders said the recovery of infrastructure construction until mid-September was more moderate than a year ago. China will accelerate the issuance of local government private bonds in Q4, but the bond's support for infrastructure may not take effect until early 2022.