China Reaffirms Plan To Cut Steel And Coal Production

15 July 2016

China will use all means to meet its goal to cut steel and coal capacity this year despite local reluctance to reduce capacity as prices rise, China’s top economic planner said on Thursday.

“As state leaders have stressed, we must fulfill the plan to cut overcapacity of steel and coal this year,” said Zhao Chenxin, a National Development and Reform Commission spokesman, in Beijing. “The pledge made by local governments will be checked at year end and those who fail to accomplish their targets will be held accountable.”

China planned to trim its steel production capacity by 45 million tonnes this year and cut coal output capacity by 280 million tonnes, Xu Shaoshi, head of the top economic planner said on June 26.

So far, the plan to stem overcapacity is starting to bear fruit with improving operations of coal and steel mills, expectations of better performance and increased bank loan payments, Zhao said.

In the first five months of this year, China’s crude steel output dipped 1.4 per cent from the same period a year earlier and its coal production dropped 8.4 per cent.

According to data from the China Iron and Steel Association, its member mills, which are the industry’s major players, reported combined profits of 8.74 billion yuan (HK$10.49 billion) in the first five months, up 738 per cent from a year earlier. About 28.28 per cent of member mills reported losses, down 13.13 percentage points from a year earlier. The mills started to report profits for three straight months since from March, the association said.

In comparison, in 2015, the mills reported a combined loss of 64.53 billion yuan, with 50.5 per cent of them reporting losses.

However, the improving market conditions have also deterred some manufacturers from further trimming capacity, Zhao said.

“All relevant parties should keep a clear head to firmly press ahead with the plan to reduce excess capacity,” he said.

Premier Li Keqiang agreed with European Commission President Jean-Claude Juncker on Wednesday that China and the EU would set up a team to monitor the steel trade and track Beijing’s efforts to address overcapacity, which Juncker said is clearly tied to the Brussels deliberation on granting China market economy status.

Vice-commerce minister Wang Shouwen said on Sunday that China reduced steel capacity by 90 million tonnes in the five years to the end of 2015 and promised to cut another 1 trillion to 1.5 trillion tonnes in the five years to the end of 2020.

The nation’s two top state-owned mills, Baosteel Group and Wuhan Iron and Steel (Group) plan to merge as the industry consolidates.

China will announce its second quarter GDP data on Friday, together with indicators on investment, industrial output and retail sales. China’s economy grew 6.7 per cent in the first quarter.


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