International Steel Mills

China Capacity Reductions Falling Short

October 6, 2016

China is not likely to meet its steel capacity reduction target of 45 million tons this year. According to data from the World Steel Association, steel output in China has fallen only 0.1 percent from January to August with production at 536 million tonnes.

Steel production rose 3 percent year-over-year in August and increased 2.6 percent from a July decline, according to data from China’s National Statistics Bureau. July’s decrease was attributed to a slowdown in production to clear the air pollutants in anticipation of last month’s G-20 meetings. In the first 10 days of September crude steel production at CISA member producers rose 4.7 percent to 1.76 million tonnes, the highest since June, according to Macquarie.

The G-20 meeting resulted in a plan to ramp up capacity cuts in the second half although so far the industry has fallen short. The 2020 target for steel capacity reduction in China is 150 million tonnes, 13 percent of its total capacity.

Li Xinchuang, president of the Beijing-based China Metallurgical Industry Planning and Research Institute, comment in China’s steel industry in a September interview with The Australian.

According to Mr. Li, China steel production peaked in 2014 and since that time domestic real steel consumption has fallen 700 million tons—down 5.5 percent in 2015 and an additional 3.0 percent in the first half of 2016.

The decline was the driving force behind the increase in Chinese steel exports that were vital for the health of the China steel industry. In the first seven months of 2016, China exported 67.5 million tonnes of steel, an increase of 8.5 percent over the same period in 2015. Mr. Li says 15 percent of Chinese steel is currently exported.

The Australian reported that Mr. Li is concerned about shrinking world consumption of steel. The consumption decline in China was driven by the changing structure of the Chinese economy, said Mr. Li. Economic growth was previously driven investment and is now driven by consumption and the services sector, said Li, which is causing the Chinese steel market to shrink more than that of the rest of the world.”