The year of the great turnaround

Updated 2018-01-23 15:42:02 China Daily

A worker inspects steel cables produced at a plant of Yukun Iron and Steel Group Co Ltd in Yuxi, Southwest China's Yunnan province.

China's steel industry shines again on capacity cuts in 2017 and better quality

China's steel industry notched up a creditable achievement last year. It improved product quality, which helped increase prices and boosted companies' financial performance. All this was made possible by rigorous capacity cuts, in response to the government's call to the sector to deal with overcapacity, rationalize and modernize.

Shanghai benchmark steel rebar prices gained more than 50 percent last year, hitting 5,230 yuan (5) per metric ton on Dec 5, the highest level since August 2008, according to steel trading platform Xiben New Line E-Commerce.

Steel prices soared on expectations that supply would tighten due to capacity cuts.

The country had met its target of cutting steel capacity by 50 million tons by last August by phasing out substandard steel bars and closing zombie companies, according to the National Bureau of Statistics.

"In the last two years, China has slashed its steel capacity by 115 million tons, close to the upper limit of 150 million tons it has set during the 13th Five-Year Plan period (2016-20)," said Xu Wenli, head of the iron and steel division at the Ministry of Industry and Information Technology.

China will further cut outdated steel capacity and prevent shuttered or illegal steel mills from returning to the market in 2018, he said.

The country will not allow any increase in its iron and steel capacity this year, according to an MIIT statement on Jan 3.

The steel sector should focus on improving the quality of its products and create more mid- to high-end products this year, said the statement.

China will further its supply-side structural reform this year, with more efforts to improve economic quality, promote innovation, cut overcapacity and foster new growth drivers, said a statement released after the annual Central Economic Work Conference in December 2017.

To help local governments achieve their capacity cut target, the Ministry of Finance in May 2017 gave additional rewards to nine local governments that have exceeded their capacity cut targets.

In 2016, the central government allocated a total of 100 billion yuan to help local authorities and State-owned enterprises finance layoffs in the coal and steel sectors.

Crackdown on substandard steel also helped the sector's healthy development.

Early last year, the National Development and Reform Commission, the country's top economic regulator, set a timeline to phase out production of low-quality steel made from scrap metal before the end of June 2017.

More than 600 steel mills engaged in the production of substandard steel products were closed by last October, with combined capacity reaching 140 million tons, according to the NBS.

Authorities sent 12 inspection groups to areas including Hebei, Henan and Heilongjiang provinces and the Guangxi Zhuang autonomous region to oversee the move.

"The capacity cuts and exit of substandard steel products have injected new vitality into the bloated steel sector, through creating a more standardized market order and pushing legal enterprises to speed up production," said Wang Guoqing, research director at the Lange Steel Information Research Center.

In the first 11 months of 2017, the country's crude steel production went up 5.7 percent year-on-year to 764.8 million tons, according to the NDRC.

China's crude steel output was expected to increase by 3 percent year-on-year to 832 million tons in 2017, and by a further 0.7 percent to 838 million tons this year, according to a report from the China Metallurgical Industry Planning and Research Institute.

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