China: facing steel overcapacity cutting plan

Reported that efforts to trim excess capacity seem to have paid off as the Chinese steel industry appeared to have met more than 80% of its annual target by September and steel prices rebounded. This may sound like good news, but it does not necessarily mean that the sector is set for a recovery any sooner than expected.

The latest figures on the progress of capacity cuts now reaching 36 million tonnes of steel, or 80% of the national annual target that were revealed by Ministry of Industry and Information Technology official Huang Libin at a news conference on Thursday surprised market watchers. That”s largely because two months previously, steel producers were reported to have met just 47% of their target reductions.

During the announcement in August, Zhao Chenxin from the National Development and Reform Commission said that cuts in steel capacity had fallen behind schedule. This prompted several government departments to send inspection teams to local governments and steelmakers to check on their progress, which put a lot pressure on them.

Steel producers responded to this by adopting ingenious measures to nearly double the amount of capacity trimmed by counting long-closed production lines as newly reduced overcapacity in a bid to conjure up more-attractive figures.

Some of these “dead” steel factories, which had ceased production for as long as three years, have been recorded by provincial governments as trimmed capacity, an industry source told Caixin.

In one survey, industry watcher CUSteel estimated that 71% of the combined annual targets of 24 provincial governments involved long shuttered mills, representing a reduction in capacity of 82 million tons of steel.

Many factories were also ordered to suspend operations during major events such as the G20 summit in Hangzhou in September, and events to mark the 40th anniversary of the Tangshan earthquake in July, which also helped to hasten reductions in overcapacity.
The 45 million tonne target for capacity cuts for steel production were based on the total amount of capacity in 2014, 1.1 billion tons, as published by the National Bureau of Statistics. However, this figure did not cover small steel factories, which were believed by insiders to have pushed up total annual production to as much as 1.2 billion tonnes.

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