Chinese Capacity Cuts Yet To Affect Steel Output – MEPS

31 January 2017

China is responsible for almost half of global crude steel production. Consequently, actions taken by the country’s steelmakers strongly influence the steel market, worldwide.

In recent times, Chinese suppliers were accused of setting their exports at remarkably low prices. Global steelmakers were often forced to offer their output at low margins or, on occasion, below cost. As a consequence, North American and European steelmakers lodged a number of trade petitions, last year, to limit the direct impact of Chinese imports. However, this month, several US and European service centres bemoaned the shortage of Chinese cold rolled and hot dipped galvanised coil. With very few third country suppliers willing to fill the void, left by China, regional producers have raised transaction prices for these two products.

The Chinese steel sector has stated its intent to reduce excess manufacturing output to address the issue of global overcapacity. The government pledged to remove between 100 and 150 million tonnes of steel capacity in the five-year period up to 2020.

Recent government estimates indicated that as much as 80 million tonnes was eliminated in 2016, against a declared target of 45 million. However, it is unclear how this was achieved. The China Iron and Steel Association previously remarked that last year’s figure included the closure of idled operations.

In fact, China’s National Bureau of Statistics reported that domestic crude steel output, in 2016, increased by 0.6 percent, year-on-year. In the absence of significant production cuts, MEPS believes that vast quantities of Chinese material will continue to enter world markets. This is likely to maintain a degree of negative pressure on global transaction values, in the medium to long term, as oversupply continues.