China promises to cut 50 million tonnes of excess steel capacity in 2017

Posted on 08 March 2017

Source: Hellenic Shipping News

China looks committed to curb excess steelmaking capacity in the country during 2017. Addressing a press conference, Xu Lejiang, vice minister of industry and information technology stated that the country is resolved to downsize the sector. It intends to slash steel production capacity by around 50 million tonnes this year. It must be noted that the country had eliminated steel production capacity by more than 65 million tonnes in 2016. As per original plan, China had committed to reduce steel output by 100 to 150 million tons during the period from 2016 to 2020.

The Chinese administration released a work report ahead of the annual parliamentary session, which pledges to make increased use of market-and-law-based methods to effectively deal with insolvent or near-bankruptcy steel firms. For years, many industries in China, including steel sector has been running at overcapacity, thereby causing serious drag on the country’s economic growth. The efforts to tackle overcapacity will continue to remain high on the government agenda, the report stated. Further, 2017 will be a crucial period for the capacity cut, the report added.

Meantime, Chinese Premier Li Keqiang noted that the move to eliminate 50 million tonnes of steel production capacity will help reduce the flooding of Chinese steel products in international market, which is alleged by the US and Europe as the main reason for the fall in steel commodity prices. Also, Li lowered the country’s growth target from last year’s 6.7% to around 6.5% or slightly higher to that this year, taking into account the pressure of trade controls imposed on Chinese steel exports by various countries across the world.

However, it needs to be seen how far the country would be successful in implementing the announced capacity cuts. The cumulative crude steel output by China had totaled 808.4 million tons in 2016, edging higher by 1.2% when compared with 2015. This is in contradiction to predictions made by several market experts at the beginning of the year that Chinese steel production will fall in 2016. Also, steel product output by the country jumped higher for the tenth straight month in December 2016, registering month-on-month rise of 7.1%.

Although official figures suggest significant capacity reductions during 2016, a recently released report by Greenpeace had questioned the claims. According to them, the country registered net capacity increase in 2016 with a total of ten Chinese provinces increasing their steel operating capacity.

According to the report, 72.48% of the steel production capacity reduction during the year was actually closed down or idle. As per statistics, 26 provinces achieved total reduction of 84.9175 million tons in steel production capacity, out of which 61.545 million tons was idle capacity. This means that the provinces were able to achieve shutdown of only 23.3725 million tons of operating capacity during the entire year 2016. The overcapacity reduction claimed by 14 provinces represented idle capacity.

Incidentally, China, with a total production capacity of 1.1 billion metric tons, accounts for nearly 50% of the world’s total steel production. The announced capacity cuts until 2020 is expected to significantly benefit global steel industry. 

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