China Fires Up Its Furnaces While Diggers and Oil Drills Slow

  • Oil, coal output shrink in 2016; metals, fuel processing grows
  • Outlook for 2017 depends on supply-side reforms: CRU Group

China may be mining less coal and pumping less crude but it’s processing more raw materials than ever in its mills, refineries and smelters.

Cost pressures and environmental regulation curbed domestic crude and coal output last year while economic stimulus propelled steel making, aluminum smelting and oil refining to record levels. The outlook for 2017 depends on the pace of supply-side reforms aimed at shifting away from heavy industry to a consumer-led economy, according to Susan Gao, head of consulting at CRU Group in China.

  • Aluminum makers ramped up output as government stimulus boosted demand, lifting prices and profits, and as new or idled smelters came online. 
  • After exports slowed for the first time in four years, shipments of aluminum are set to rise again in 2017, according to consultant SMM Information & Technology Co. That may set up trade friction with the incoming U.S. presidential administration of Donald Trump that’s signaled a tougher line on supply from the world’s top producer.
  • Output last year rebounded after contracting for the first time on record in 2015 as resurgent construction and infrastructure spending, as well as a lively auto sector, helped spur prices higher in 2016.
  • Stronger domestic demand meant exports fell for the first time since 2009, though at 108 million tons, they were still near historical highs. The country will ship more than 100 million tons of steel overseas in 2017, according to Tomas Gutierrez, an analyst at Kallanish Commodities Ltd., a consultant.
  • Oil refiners processed a record volume of crude as they prepared to meet clean-fuel standards that went into effect at the start of this year.
  • After rising 3.7 percent to a total volume of 541 million metric tons, processing may gain slightly this year to about 550 million tons as new units coming online at state-run refiners counter reductions by independent units amid policy shifts, according to Jean Zou, an analyst with Shanghai-based commodities researcher ICIS-China.
  • Oil output slumped in 2016 as state-run explorers slashed spending following crude’s price crash. Production dropped 6.9 percent, the biggest decline in records going back to 1990, to just under 4 million barrels a day.
  • Even as oil stabilizes about $50 a barrel after a recent OPEC deal to cut global supply, China’s output is forecast to drop even further this year as declines from the country’s old, high-cost fields are difficult to reverse without renewed spending and higher prices.
  • Coal output fell by more than 9 percent as the government imposed mining limits to cut a glut. A price surge forced policymakers to partially backtrack, allowing production to recover at the end of the year.
  • While output is seen falling further in 2017, the rate should slow as the government will likely set fewer output restrictions, according to Zeng Hao, a coal analyst with Fenwei Energy Consulting Co.

— With assistance by Sarah Chen, Martin Ritchie, and Ramsey Al-Rikabi

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