Iron & Steel Industry Expected to Eliminate More Obsolete Capacity than Planned in 2012

SHANGHAI, Jun. 6 (SMM) -- The Ministry of Industry and Information Technology (MIIT) set outdated capacity elimination targets for provinces, municipalities, and Xinjiang Production and Construction Corps regarding 19 industrial sectors in April. 10 million mt/yr of outdated puddling capacity will be eliminated, and 7.8 million mt/yr of outdated steel-making capacity will be phased out in 2012.

According to Steelease statistics, 16 provinces and municipalities have released outdated capacity elimination targets for 2012, with 9.79 million mt/yr of puddling capacity and 6.49 million mt/yr of steel-making capacity are going to be eliminated. Steelease believes domestic iron and steel industry will eliminate more outdated capacity than planned in 2012.

As the Zhanjiang, Fangcheng port and Shougang Qian'an Iron & Steel Company’s project were approved and are coming online, domestic iron and steel capacity surplus will exacerbate. In this scenario, China will take stricter measures accelerating obsolete capacity elimination. Besides, the Zhanjiang and Fangcheng port projects were approved with the elimination of some existing capacities at Wuhan Iron and Steel and Baosteel.

In addition, Steelease believe current slack steel prices and supply surplus will not change in the short term. Given low profit margins even losses at steel plants, steel plants were forced to eliminate outdated capacity.

According to the initial target set by the MIIT in April, China only needs to eliminate 210,000 mt/yr of steel-making capacity and 1.31 million mt/yr of puddling capacity to complete the target. On the other hand, there are still 10 provinces and cities which have not released detailed plan of outdated capacity elimination, so Steelease believes the outdated iron and steel capacity eliminated in 2012 will outstrip targets.