China to cut crude steel production amid capacity glut

25 January 2016

China will cut crude steel production capacity by 100-150 million tonnes and reduce the size of the coal industry to fight a capacity glut, the government said.

The State Council, or cabinet, led by Premier Li Keqiang, made the decisions at a meeting on Friday, according to a statement on the Chinese government’s main web portal.

The State Council reiterated an earlier decision to halt in principle the approval of new coal mines and additional capacity, the statement said.

It said the government would reduce coal production capacity “to a large extent”.

The government will also increase policy support including special awards to companies restructuring to eliminate overcapacity and affected workers in both industries.

China’s government is pushing to erode overcapacity in the steel industry, as the country aims to shift economic growth towards more consumption rather than heavy investment. The nation’s massive steel sector is said to have surplus capacity of about 300 million tonnes.

China’s crude steel output fell 2.3% to 803.8 million tonnes in 2015 from the previous year, government data showed on Tuesday, the first drop in more than three decades as the economy of the world’s top producer slows.

The statement did not give a time frame for cutting steel production or an amount by which it will cut coal capacity.

China announced in December it would stop approving new coal mines for three years, but the move was viewed as likely to make barely a dent on the world’s biggest coal industry given its vast existing production capacity.

Some estimates suggest China’s surplus capacity could be as high as 2 billion tonnes of coal a year – more than 50% of 2015 output – in a country with nearly 11,000 mines.