According to reports, China’s key steel producing region Hebei has recently released its new capacity cut plans for three years starting from 2018 to 2020.
The province plans to cut steel capacity of 10 MnT in 2018, another 10 MnT in 2019, and 20 MnT in 2020 in order to keep the region’s steel capacity within the limit of 200 MnT by the end of 2020. It has also vowed to remove all the zombie enterprises by the end of 2018.
The Hebei province is expected to reduce its steel smelting sites from 82 in 2018 to 70 in 2020 whereas the number of steel manufacturers is expected to cut down to 60 in 2020.
In its plan, Hebei has asked its top 15 steelmakers to increase their share in total capacity from 59% to 90%. It has also planned to increase the production of medium and high-end products and the proportion of medium and specialized plates in the flat products is set to increase from 49% in 2017 to 60% till 2020.
By 2020, Hebei steel industry aims to lead the country in energy-saving and emission-reducing and to keep its pollution emission within the limits.
Hebei’s past performance in the steel capacities reduction
According to reports, Hebei has been following production cuts since 2011 even before the government mandated the production cuts in its 13th five-year plan starting from 2016.
The region has cut steel capacity of 86 MnT in total during 2011 to 2017 with 28 MnT being cut alone in 2017. By the end of 2017, Hebei province reduced its steel capacity from the peak of 320 MnT in 2011 to 239 MnT. In addition, the number of steel smelting sites was reduced from 148 to 87, and the steel companies were cut down from 123 to 67.
China’s efforts to tackle overcapacity
In an effort to tackle the problems of overcapacity and rising pollution from the steel mills, China had announced plans to cut its excess steel capacities by 150 MnT during the tenure of five years starting from 2016 to 2020.
While in 2016 the country had production cuts of 65 MnT, in 2017 it pre-achieved its target of 50 MnT by Aug’17. As the problem of smog aggravates during the winter season, the country mandated the production cuts further during the winter season.
The primary targets of production cuts were sinter and ironmaking facilities in Hebei, Henan, Shanxi, Shandong and Tangshan regions which together account for around half of all China’s steel output. These regions were mandated production cuts of 50% during the ‘heating season’ starting around Nov’17 and ending in Mar’18.
Are China’s production cuts extended beyond Mar’18?
While China’s Tangshan province has officially announced the extension of its production cuts beyond winter heating season starting from Mar’18 to Nov’18, there was no update of cuts extension from other key steel producing regions.
However, SteelMint has heard from its market sources that the winter production cuts in China’s major regions have been extended by a month beyond Mar’18. Nonetheless, there is no official confirmation received on the same.
China is dealing with lackluster demand and fall in its steel prices since the start of March. According to market sources, the main reason cited for the same is liquidity crunch in the market as the Chinese government is making efforts to deal with its rising level of debt which has become a big threat to the country’s economy.
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