Steel output on the rise despite capacity cuts, says data

By Anil Mathews

BEIJING (Scrap Monster): The crude steel production by China during the initial three quarters of the current year recorded significant increase over the corresponding period last year. Meantime, government authorities stated that the centrally administered state enterprises are well on track to achieve the annual capacity reduction goal set for 2016.

According to production data released by the World Steel Association, the Chinese crude steel output totaled 68.17 million tonnes, significantly higher by 3.9% when compared with the same month last year. The cumulative production during the initial nine-month period of the year was marginally up by 0.4% over the year. The country’s crude steel output during Jan-Sep ’16 totaled 603.78 million tonnes.

Meantime, the State-owned Assets Supervision and Administration Commission (SASAC) noted that the centrally administered state-owned enterprises (SOEs) are likely to achieve the annual capacity reduction goal for the entire year ahead of schedule. The official target of 7.19 million tonnes, set by the government for 2016, is most likely to be achieved by end-October, said SASAC official. As per government plans, the five central SOEs are supposed to cut their crude steel capacity by a total of 21.37 million tonnes during the three-year period commencing in 2016.

The country has been slashing its steel capacity over the past several years. However, the efforts have gained considerable momentum during recent months. As per estimates, China has cut steel capacity of more than 90 million tonnes over the past five years. Also, by July this year, the country has already cut capacity by 13 million tonnes, nearly 47% of the planned production cut for the entire year. The Chinese administration plans to reduce steel output by additional 100 million to 150 million tonnes by 2020.

According to the National Development and Reform Commission (NDRC) also confirmed that the country is ahead in its efforts to phase out excess steel capacity. The capacity cuts will augur well for the bigger and modern steel producers in the country, thereby leading to consolidation within the highly fragmented industry. The cuts could also result in increased utilization rate by mills, NDRC observed.

The steel prices have already shown improvement during the year on the back of rise in demand from infrastructure sector. The China Steel Price Index climbed higher by 22.63 points during third week of October, when compared with the start of the year. The steel prices during mid-October were almost 30% higher when compared with the price levels during the beginning of 2016. The steel industry profits have seen significant surge, mainly on account of sharp recovery in steel prices.

The recent merger of Baosteel and Wuhan to create the world’s second biggest steel producer after ArcelorMittal, has helped in optimizing product mix and reducing overcapacity. The merger is expected to rationalize the country’s steel production. As per industry experts, the merger is expected to result in major reduction of excess capacity, since both the companies produce high-end steel products like silicon steel and steel used in automobiles. Reports indicate that the Chinese administration is considering proposals towards merger of two Chinese steel majors-Anshan Steel and Benxi Steel by the end of this year.