Global Steel Industry Skeptical Of Chinese Push To Drive Capacity Cuts

Year-to-date, the country has been successful in slashing 31.7 million tons of steel and iron capacity and 68.97 million tons of coal capacity.

BEIJING (Scrap Monster): The Chinese administration has reiterated that cutting overcapacity enjoys top priority on the country’s reform agenda. The country has been successful in meeting its capacity-cut targets in 2016. The country is on track to hit the 2017 targets as well. However, steel industry is deeply concerned about continued rise in Chinese steel output, despite implementing capacity-cuts. Some are of the opinion that capacity cut targets set by Chinese administration are hard to achieve.

The statement released after State Council executive meeting noted that efforts to phase out substandard production capacities will continue. According to the implementation plan released by the Chinese National Development and Reform Commission (NDRC) in coordination with other departments, all facilities producing inferior quality steel bars will be dismantled before end-June this year. The country aims to cut steel production capacity by around 50 million tons and coal by at least 150 million tons this year. Year-to-date, the country has been successful in slashing 31.7 million tons of steel and iron capacity and 68.97 million tons of coal capacity. This essentially means that it has achieved 63.4% and 46% of their annual target respectively.

As per reports, the enthusiasm of local authorities has started waning as capacity cuts often result in huge drop in collected tax. Moreover, money has to be spent on relocating employees affected by capacity-cuts. During the previous year, nearly 725,000 employees were affected by downsizing of steel and coal capacities. The government spent nearly $30 billion yuan in providing aid to them. The government is yet to provide assistance to 500,000 around workers impacted by capacity-cuts this year. Under these circumstances, the pace of capacity-cuts may slow down in the near future, sources said.

According to Fitch Ratings, China will find it harder to hit capacity-cut targets set for 2017. Closing of actively producing capacities will result in thousands of job losses. China had been successful in achieving 2016 goals, as most of those capacities were already idle. A report published by Greenpeace had stated that 61.545 million tons of the 84.9175 million tons capacities closed down in 26 provinces were already closed or idle capacities. When compared with the downsizing target of 290 million tons of coal capacity and 65 million tonnes of steel capacity in 2016, the respective targets of 150 million tonnes and 50 million tonnes are considerably less, but are yet difficult to achieve, Fitch noted.

Eurofer noted that China is likely to report overproduction of steel in the next few quarters, despite the planned capacity-cuts. Incidentally, the country’s steel production had surged higher by 4.6% during the first quarter of the current year to 201.1 million tonnes. In 2016, at a time when the country achieved capacity reduction goals, the production of steel had increased by 1.2%, with a total of 10 Chinese provinces reporting increased steel operating capacity.

According to Eurofer, elimination of 50 million tonnes of steelmaking capacities may help in reducing flooding of Chinese steel products in international market. However, expansion of capacities in other countries including Iran may likely balance the overall global steel capacity, it noted.

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