Chinese Steel Companies to Face Shutdowns

The Chinese steel industry suffered combined losses of 5.5 billion yuan in the first nine months of 2013 after registering a stunning profit of 38.7 billion yuan in 2012. According to CISA statistics, production costs, raw materials, fuel and labor costs all are increasing faster than the price of steel. The Chinese government wants a return to market economics where production follows demand.

Overcapacity continues to plague the Chinese steel industry and is expected to continue in 2014. Crude steel output for 2013 is expected to reach 782 million tonnes and grow 2-3 percent in the coming year. The China State Council plans to cut 80 million tonnes of steel production over the next five years in an effort to clean up air quality and reduce destructive competition within the industry.

Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute called for a ban on increasing capacity; “China should not add any single new steel project for any reason.” Shutdowns and consolidations will be used to reduce capacity while technical innovations and green technology will be used to upgrade remaining mills to meet environmental standards and efficiency.

A major portion of the restructuring will be in the Hebei province where one third of the province’s steel production will be shut down by 2017—a reduction of 60 million tonnes with 15 million tonnes reduced in 2014. The shutdowns will be permanent and will include destroying blast furnaces and cutting power supplies said Lu Huaying, an analyst with Lange Steel Information Research Center. The measures are necessary to keep mills from restarting after government authorities complete their inspections. Any mill that does not meet environmental protection standards or shows low competence will be targeted for shutdown.

(Sources: CISA, Ecns.com, World Steel Association)