The Chinese government has pledged to punish steel companies that illegally expand capacity, in a sign that the authorities are maintaining their tough stance despite having met capacity targets for this year.
Beijing remains concerned about the persistence of illegal capacity and production, even after announcing earlier this month that it has achieved its 45mn t/yr crude steel capacity removal target for 2016 ahead of schedule. The state council, China's cabinet, will send inspection teams to investigate and punishment companies that are violating the government's rules, China's premier Li Keqiang said yesterday.
Li named two steel companies that had built capacity illegally — Hebei Anfeng Iron and Steel and Jiangsu Xinyi.
The prospect of an investigation into Anfeng Steel, which has capacity of around 8mn t/yr, pushed billet prices higher today, with Tangshan Xinda Steel increasing its prices by 100 yuan/t ($14.50/t) to Yn2,620/t. Other steel producers may also increase prices because of the prospect of a shortage of steel products if inspections intensify.
The government will employ technologies such as big data monitoring and remote sensing to monitor steel capacity on a real-time basis and prevent illegal additions to capacity, Li said.
The state council's decision to increase its enforcement programme comes a day after a China-US joint statement on accelerating efforts to set up a global forum on steel overcapacity. The US government expressed its "deep concern" about steel overcapacity. The state council's official statement referred to president Xi Jinping's commitment to reduce steel overcapacity made at the G20 summit in China earlier this year.
The government's comments may also have been motivated by official figures showing a 0.7pc increase in crude steel output in the first 10 months of this year, despite the ambitious capacity reduction drive. China produced 672.96mn t of crude steel in January-October this year, as higher steel prices since March prompted some idled capacity to restart.
"Backward production capacity must be resolutely eliminated and enterprises should not engage in equal-volume replacement," Li said. Central inspectors will conduct random checks on companies that have claimed to remove excess capacity to ensure these plants have been permanently eliminated and not just mothballed.
Beijing will also encourage steel companies to merge, along the lines of the recent tie-up between two of the country's biggest state-controlled producers Baosteel and Wuhan Iron & Steel.
The state council will also send a second team of central government environmental inspectors to seven regions — Beijing, Shanghai, Guangdong, Chongqing, Shaanxi, Gansu and Hubei. The biggest steel producers in these regions are Shanghai-based Baosteel and Chongqing Iron & Steel. But the inspections are unlikely to have much of an impact in the steel market as they skip the key steel-producing provinces of Hebei and Shandong.
