Maximizing returns: Chinese steel mills to ramp up output before curbs bite again

MANILA/SHANGHAI (Reuters) - China’s steel producers are eager to unleash their mills’ capacity when this winter’s output curbs end next month, hoping for a repeat of last year’s record profits based on high margins and less competition as outdated plants were closed.

China shut down up to half of its steel production this winter in 28 cities in the country’s manufacturing heartland in the north as part of an anti-pollution campaign. With margins still encouraging full output, China’s pent-up steel production should erupt when the curbs expire on March 15. 

Because of the curbs, China’s average daily steel output in December was the lowest in a year at 2.16 million tonnes, government data showed last month. Average daily output may rise to about 2.5 million tonnes if the mills quickly boost production when the restrictions are lifted, Wang Yingsheng, vice secretary-general of the China Iron and Steel Association told an industry conference in late January. 

With the government likely to re-impose the limits next winter, northern Chinese mills will have only about eight months to run at full speed, so plants are stocking up on raw materials to maximize production while the market conditions remain strong. 

“I think there could be restrictions again on mills in north China this year and they could increase output before the restrictions,” said a senior manager at a steel mill in southern China. 

“If the market’s good, every mill will try to run at full capacity in order to make more profit.”

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