Steel Outdated Capacity Elimination Result Depends on Government Implementation

SHANGHAI, Apr. 3(SMM) - The Ministry of Industry and Information Technology (MIIT) announced the first 45 enterprises that meet the Iron & Steel Industry Requirements on April 2nd, 2013. Total output of the 45 steel producers in 2012 was 300 million mt, accounting for 41.4% of total domestic crude steel output in the year.

The MIIT will jointly implement M & A, obsolete capacity elimination, technical reform and energy savings and emission reduction with relevant departments at those enterprises which meet the requirements. With regard to those enterprises which fail the requirements, the MIIT will use economic measures such as differentiated electricity price, fiscal encourages and assessment, legal measures and necessary administrative measures with other departments to progressively force them out of the market and relieve overcapacity.

Steelease believes the effect of the capacity elimination will depend on the implementation by governments.

The environmental protection issue had been a focus of the NPC and CPPCC. The Environmental Protection Office held a press conference to analyze the air pollution problem, and put emphasis on the treatment of air pollution. Steelease thinks the capacity elimination policy will also help resolve the toxic frog problem.

Due to inefficient implementation, merger and acquisitions and outdated capacity elimination failed to curb capacity surplus over the years past. Labor force allocation and financial benefits problems have been hard for local governments and enterprises to resolve. Steelease believes only the market itself can push substantive industry consolidation to resolve capacity surplus problem, rather than M & A implemented by governments.

Although the implementation of the policy will not take effect in the short term, futures and spot prices rose once the news was released. Steelease believes market sentiment and prices will be affected noticeably in the near term, and medium-to-long term effects will depend on implementation by governments.