China's President Xi Jinping today signalled continued environmental controls and capacity reduction programmes will remain key pillars of economic policy in the years ahead, which are largely supportive of steel prices as they help keep a lid on supplies.
China will adhere to "supply-side structural reforms" as the main line of its economic policy, which refers mostly to the shedding of excess capacity in several sectors, including heavy industries such as steel and cement. China has already met its target of eliminating 150mn t/yr of crude steel capacity in the 2016-20 period during this year already. But if Beijing deems continued structural reforms a priority it may set capacity reduction targets for next year too. Such reduction in blast furnace-based capacity, along with a complete elimination of 140mn t/yr of induction furnace-based capacity in 2017, has helped lift steel prices and profits.
There is some speculation that China may de-emphasise capacity cuts and environmental clean-up as it aims to shore up its economy amid the US-China trade spat. But Xi said the country is committed to building an "ecological civilisation" and ensure pollution prevention, clean air and clear water for its citizens. China's steel prices have been battered since November as looser environmental restrictions this winter allowed more supplies to come into the market in a seasonally slow period.
There was no direct reference to China offering stimulus to revive economic growth in Xi's speech on the 40th anniversary of China's economic reforms, a key area of interest for ferrous markets since it could lead to more infrastructure construction and additional steel demand. Xi spoke of expanding domestic demand, balanced regional development and the country's commitment to open up its economy further to the world.
