What is happening in Hebei right now ?
We have not posted a blog for quite a long time, but it has been a conscientious decision as we became more focused on highlighting our findings and announcements via the LinkedIn company page as short up to date posts. Why one more blog then? Because this merits a little more description and analysis. Here we go..
The need for realtime insights in these turbulent times
The world is going through a lot of changes and unprecedented events like pandemic, geopolitical events, climate changes and even black swan events like Suez Canal blockade are impacting the global supply chain of important commodities. Add to these the new developments such as data protectionist policies enacted by various countries or the great rush to EV metals. All these has increased the overall volatility in the market and spurred the need for near real time insights on the entire supply chain. Today, effectively monitoring and handling the short-term strategies is as important as planning for the long term. We have seen it with the lockdowns, the blockades, the conflicts and the natural disasters; how all these events has lead to the sudden spike in prices or tremendous supply constraints. We cannot stop these events, no matter how much we try, nor can we remove its impact on the long term plans and strategies. But can we be better prepared when it arrives?
What have we been doing ?
At Tathya.Earth, we are working with our clients who are primarily in the metals and mining supply chain, which is our first focus area, to navigate these turbulent times with our satellite data based near realtime insights. We have been working on some of the critical sectors such as monitoring the industrial activity and the inventories currently in Europe, the mining activity in some of the remote mines, the inventories of critical raw materials at some of the major ports, the steel production in some of the major locations where no other information is available to help our clients stay much ahead of the market.
Recently, in a similar exercise, we have started monitoring the steel production in Hebei Province of China. Why is this important?
The Hebei province produces around 20% of the world steel and steel being the backbone of industrial activity, any fluctuation in production in this region has an impact at a global scale. Add to the supply constraints of the main raw materials for steel production : coal and iron ore which is mostly imported from countries such as Australia and Brazil and the high price of finished products such as HRC and we have quite a swinging supply chain before us.
Hebei in news
The province has been in lockdown for a major part of March and April due to Covid lockdown as quoted by major news sources such as Reuters, Bloomberg, BBC and local media outlets. March was also the month when strict emissions-reduction controls were in place which also included decommissioning of Blast Furnaces. The top steelmaking region of Tangshan in Hebei province had also implemented a partial lockdown to avoid further infections and residents were not allowed to leave houses. Strict entry and exit controls have been in place on many roadways and flights had been cancelled. There has been news of business closures and disruption to production operations in Hebei Province’s industrial areas which has led to many steelmakers and related businesses halt production. Some steel mills also highlighted that they faced acute raw material shortage as trucks and lorries ferrying them from ports has halted operations. The assumption from these news quotes would be that production in the month of March will be low.
What did our satellite data based hot metal production index show?
Our Hebei Hot Metal Production Index, which comprises of the major steel mills in the Hebei province, also showed a massive decrease in March production numbers in line with the restrictions in Hebei. In fact, since Jan 2020, the production index was lowest this March with a MoM decrease of 8% and a YoY decrease of 30% (Chart 1). The production index was low in January and February of 2022 as well compared to previous years. This was because of the Winter Olympics in Beijing which is located very near to the steel manufacturing hub.
The Production Index was lowest in the Week 11(week ending 19/03/2022) and Week 12(week ending 26/03/2022) and then it started picking up till Week 15(week ending 16/04/22). However Week 16 and Week 17 (week ending 30/04/22) again shows a decrease (Chart 2).
And how does it compare to the actual results?
Before going to this comparison, we want to mention that in many of our client meetings we are asked about our accuracy numbers; how does our production, inventory or mining index stand up against the actual numbers that are released much later by the companies we monitor or by the regulatory agencies. We are proud to state that overtime we have been able to achieve a good level of accuracy with the actual numbers. In assets where historical numbers are not available, we have been able to capture incidents and trends which have been later validated by ground sources. Occasional divergence has been seen, say during phases of continuous bad weather or in case of some mills where our production index showed a steeper trend then the actual numbers but it was later verified from ground sources that the company actually disclosed lower numbers to evade pollution curbs.
But in the case of Hebei Province, we saw a big divergence..
The January production numbers were not provided by the authorities while the February numbers did match our trend. However in the month of March, we saw a divergence and it was quite significant (Chart 1). The March production showed a massive 32% MoM increase which meant that production activity was actually very high in the month, which was contrary to what our production index showed. The increase in Hebei actual production numbers is also a divergence from the PMI (Composite output) from NBS and S&P, the S&P Manufacturing PMI and also the Steel PMI published by CSLPC all of which showed a decreasing trend similar to our Hebei Hot Metal Production Index. In fact, the CSLPC (CFLP Steel Logistics Professional Committee), where CFLP stands for China Federation of Logistics & Purchasing, also mentioned that the March production has been low due to production curbs for environmental protection during the Winter Paralympic Games during the beginning of the month and by the resurgence of COVID-19 cases during the latter part of the month.
All these meant that the actual production should ideally have been low. If there was more production, it would have resulted in higher activity, which would have been captured by the sensors. While exceptions might happen in one or two mills, such increase in activity cannot be missed uniformly across all the steel mills which comprise our index. Offcourse there has been mills such as Shougang Jintiang steel mill, Yanshan Steel mills or Tangshan Medium Thick Plate which showed an increase in production activity and we were able to capture them.
Conclusion: The need for Alternative data based monitoring
So what data supports and justifies such increase in production numbers ? We do not know. Nor do we know how it relates to the impact of covid there. Should the officially released numbers show a much lesser impact and the fact that industrial activities are going smoothly and markets need not be worried ? This has also brought us to a very important question, which will become even more critical in the coming days of data protectionism, voluntary reporting or choosing to report only positive impacts and high probability of intervention to released numbers: How much importance should be given to accuracy when compared to such released numbers? Can these released numbers themselves be monitored ?
At Tathya.Earth, we are building a platform to monitor one of the most important components of the global economy — the metals and mining industry. Our goal is to provide near real time and factual insights on global supply chain of metal commodities like steel, coal, iron-ore, copper, nickel and lithium and various other metals — starting from the mines to the ports and then to the industrial units. In case you are interested to know more on any of our products or have any specific requirements, please contact us at firstname.lastname@example.org or visit https://www.tathya.earth/contact.html or take a free trial from for company home page https://www.tathya.earth/.