Business / Hangzhou G20

Untold story of China's steel woes

By Yang Ziman (China Daily) Updated: 2016-09-04 08:11

Untold story of China's steel woes

A worker in action at a steel plant in Lianyungang, Jiangsu province. Si Wei / For China Daily

Despite cutting overcapacity, odds remain stacked against the world's biggest producer

China has made a significant contribution to the global efforts to cut steel capacity, in spite of its own mammoth difficulties, said experts.

"China has been actively cutting its steel overcapacity to help solve the global oversupply problem. China's large and medium-sized steel companies are taking the lead in this endeavor," said Li Xinchuang, head of the China Metallurgical Planning and Research Institute.

Steel overcapacity is a worldwide problem. At present, the utilization rate of the world's steel capacity is around 66 percent, and that of China is 71 percent.

China is now the world's biggest steel producer and exporter. Its crude steel production capacity stands at 1.13 billion tons, accounting for nearly half of the world's total.

During the 12th Five-Year Plan (2011-15), China cut around 90 million metric tons of crude steel capacity.

At the moment, China's steel capacity is more than 1 billion tons. Many small-sized companies have gone bankrupt due to small utilization rates.

Even so, the country plans to cut crude steel capacity by another 100 million to 150 million tons in the next five years, according to the 13th Five-Year Plan (2016-20).

"The US, Japan and European countries have spent more than 10 or 20 years solving the overcapacity issue in their steel sectors. The scale of China's (steel capacity) reduction plan is much bigger than that of those countries, which means China is facing many more difficulties," said Li.

According to Statista, a Hamburg-based statistics company, the average price of one metric ton of ore was $55 in 2015, down from the peak of $168 in 2011.

The slump in iron ore prices triggered the downfall in steel prices, said Lu Xiaoming, a steel industry analyst with the China Economic Information Service.

"Although China produces nearly half of the world's steel, 88 percent of its products are consumed domestically. Its exports are not large enough to dominate international market prices," said Lu.

China's steel exports have been confronted with increasing protectionism from the European Union.

The European Commission on Aug 4 decided to impose duties ranging from 19.7 to 22.1 percent on cold rolled steel products imported from China, the second bout of anti-dumping duties on Chinese steel products in that week.

"China's steel products account for less than 5 percent in the European Union countries, which is not going to have significant impact on the market," Shen Danyang, spokesperson for the Chinese Ministry of Commerce, said.

Shen noted that the ultimate cause for the current difficulties in the EU steel industry is lack of growth momentum - and trade protectionism is going to hurt fair competition and miss the opportunity to find the right solution.

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