China meets over 80pc of 2018 steel capacity cut target

China has completed 82.3pc of its steel capacity reduction task for this year.

Steel mills have eliminated 24.7mn t/yr of the 30mn t/yr capacity reduction target set for 2018. China had set a target of cutting 150mn t/yr of crude steel capacity for 2016-20 in its 13th five-year economic plan but this goal will be met this year itself.

China has eliminated a total of 120mn t/yr of mostly blast furnace-based capacity in 2016 and 2017. The government also claims to have eliminated 140mn t/yr scrap-fed induction furnace capacity last year.

While eliminating around 5mn t/yr capacity in the remaining part of the year does not seem much of a task, increased profitability and rising steel prices have made mills unenthusiastic about losing capacity and makes the remaining task harder, said the country's main economic policy planning agency the NDRC.

Once the target is accomplished for the year, the NDRC outlined four goals for future steel capacity control. Capacity replacement projects that bring in advanced production technology and a higher value-added product portfolio, elimination of chronic, loss-making "zombie" enterprises, a focus on more eco-friendly and less energy consuming steel production and promoting mergers and acquisitions to consolidate the steel sector will be the major focus.

Capacity replacement projects, which typically involve pushing steel mills out of populated towns and cities and to coastal industrial parks are not allowed to be done without some loss of capacity for blast furnace-based projects.

There is some expectation that explicit targets for capacity reductions may not be set in 2019 and 2020, although Hebei province, the country's largest steel-producing region, has announced it will cut 40mn t/yr capacity over 2018-20.

The NDRC also said that recent checks in various provinces to detect re-emerging illegal induction furnaces found such cases in Jiangxi, Ningxia and Shaanxi provinces.