How Much Steel Capacity Cuts is China Likely to Follow in 2018?

In an attempt to control overcapacity and to have clearer skies, the Chinese government announced its massive restructuring plan for the country’s steel sector in 2016. This plan involved steel capacity cuts of 100-150 MnT by 2020.

China’s steel capacity cuts

Now according to country’s official numbers, China was successful in eliminating steel overcapacity of 65 MnT in 2016 and 50 MnT in 2017 and the country has resolved to cut steel excess capacity of around 30 MnT, thus completing the target of cutting steel overcapacity of 150 MnT mentioned in 13th Five Year Plan.

As per the industry reports, China successfully eliminated crude steel production capacity of 138 MnT (includes backward capacity but excludes substandard steel production capacity) and shut down substandard steel capacity of over 142 MnT in 2016 and 2017.
The government work report also shows that the country will unswervingly address steel overcapacity and focus more on the environmental protection, quality and safety. China will optimize capacity structure by shutting down zombie companies, conducting capacity replacement, promoting mergers and reorganizations.

Hebei province, China’s one of the major steel producing city has planned to cut steel production capacity of 10 MnT in 2018. According to city’s governor, Hebei province cleared out eight zombie steel enterprises in past two years, and the remaining three ones will be cleared out within this year. The city also plans to support mergers and restructurings and push forward the reduction and relocation of steel mills in the cities.

China’s Tangshan city production cuts in 2018

With the onset of winters, China’s air quality deteriorates to quite poor levels due to pollution emitted from the steel industry. Thus, in Sep’17, the Chinese government further announced steel capacity cuts from mid Nov’17 to Mar’18 and the production loss due to these cuts is estimated to be around 33 MnT.

Now Tangshan City, the country’s steel-producing hub has extended its production cuts beyond the non-heating season and has ordered a two-tier system of restrictions that will last from 16 Mar’18 to 14 Nov’18. Mills closest to the city will have to halt 15% of capacity, while the remaining will be required to keep 10-15% of their capacity as idle.

Although Tangshan’s production cuts will affect less than 1% of country’s national capacity, city’s move signals the government’s intention to prioritize clean air over industrial output.

China’s Province-wise Plan to Curb Steel Over-Capacity in 2018

*Tangshan’s city production cuts in actual numbers is awaited
Source: SteelMint