Steel furnace operating rates fell to record-low levels last week despite the arrival of the peak season for construction, which should have boosted steel output. In contrast to the previous round of “supply side structural reform” initiated in 2016, local governments are leading this round of production restrictions in an effort to compete with one another to comply with Beijing’s high-level carbon emissions reduction targets. The sharp recent contraction in supply has sent steel product prices to record highs, widening steelmakers’ profit margins and fueling stronger producer price growth. However, continued weakness in household consumption and incomes should limit the passthrough to consumer prices.
