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UPDATE 1-China Sets Consolidation Target for Top Steel Mills
Jun 18,2010 11:04CST
data analysis

BEIJING June 18 -- China aims to put more than 60 percent of its total steel capacity in the hands of its top 10 steel mills by 2015, up from 44 percent in 2009, the country's cabinet, the State Council, said on Thursday.

In order to reach the target, local governments will be ordered to submit consolidation plans to the Ministry of Industry and Information Technology (MIIT) as soon as possible, according to a policy document published on China's official government website (www.gov.cn).

China has struggled to impose order on its fragmented and chaotic steel sector, and has more than 3,000 steel mills ranging from state-owned giants such as Baosteel (600019.SS: Quote) to private backyard smelters scattered throughout the countryside.

Previous targets to bring 50 percent of capacity under the control of the top 10 steel enterprises by the end of this year are unlikely to be met.

But senior executives with the country's leading state-owned mills have continued to stress that the consolidation campaign will be stepped up this year and the next as industry minnows struggle to cope with a slump in demand and a rise in raw material costs.

The State Council document listed a range of policies aimed at improving the industry's global competitiveness, including tariff adjustments aimed at discouraging the exporting of low value-added steel products.

It also plans to halt capacity expansion plans in regions that fail to eliminate outdated capacity, and will not approve any new steel project until the end of next year. However, it said mills that quickly shut down outdated and inefficient production facilities will be rewarded.

It said the latest round of closure plans would be announced shortly by the MIIT.

The government also plans to introduce differential power prices aimed at discouraging inefficient energy consumers in the sector, and will tighten loan approval procedures for steel firms. The favourable tax policies currently offered to local mills will also be reviewed.

It will also encourage the biggest mills to build plants abroad, the State Council document said.

The document also noted that it would encourage domestic steel mills to establish stable iron ore supply bases overseas, and to establish a fair and reasonable pricing mechanism for the key steelmaking ingredient. It called upon the number of importers to be reduced in order to improve China's sway in global trade.

It also said China was currently studying measures aimed at reducing production costs for domestic iron ore miners and improve domestic supply capacity.


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