China completes the task of eliminating excess iron and steel production ahead of schedule

Xinhua News Agency, Beijing, Jan. 14 (Xinhua) -- China's iron and steel industry has fulfilled its five-year target of eliminating the 100-150 million tons of excess capacity ahead of schedule, said Yu Yong, president of the China Iron and Steel Industry Association on Jan. 14. At present, the market environment has been significantly improved, the contradiction of serious excess capacity has been effectively alleviated, high-quality capacity has been brought into play, and the benefits of steel enterprises have improved significantly.

Since the international financial crisis, the efficiency of China's steel industry has been declining continuously, falling into the lowest point in 2015, and the whole industry has suffered serious losses. In this regard, China has proposed to actively and orderly dissolve the excess capacity of iron and steel, "starting in 2016, it will take five years to reduce the capacity of crude steel by 100 million to 150 million tons". By the end of 2017, steel production capacity had exceeded 115 million tons.

Yu Yong, at the Council (Expansion) Meeting of China Steel Association in 2019, said that in the first 11 months of 2018, a total of 708 million tons of pig iron, crude steel and steel, 857 million tons and 1,013 million tons of crude steel and steel were produced nationwide, up by 24.4%, 6.73% and 8.30% respectively over the same period of last year. Among them, the output growth rate of the member enterprises of China Steel Association is significantly lower than that of the non-member enterprises.

"The sustained growth of iron and steel production in 2018 not only fills in the market space after the removal of `floor steel', but also contributes to the growth of domestic market demand and the rapid release of production capacity." Yu Yong said.

Thanks to the sustained and in-depth supply-side structural reform, in the first 11 months of 2018, China Steel Association member enterprises realized a total profit of 280.2 billion yuan, an increase of 63.54% year-on-year; sales profit margin of 7.45%, reaching the average level of the industrial industry; asset-liability ratio decreased by 3.39 percentage points to 65.74% year-on-year; and half of enterprises' debt ratio has fallen below 60%.

However, in Yong's view, the basis for sustained profitability is not solid. In the first 11 months, the purchasing cost of scrap steel and energy increased sharply year-on-year. With the decline of steel prices after November, the efficiency of enterprises declined significantly, and some main industries of iron and steel fell back to the edge of break-even.

He said that after entering November, steel prices had fallen rapidly and rebounded in December. At the end of the year, steel prices fell rapidly due to various reasons, such as weakening demand, output growth, trade protection and unbalanced implementation of environmental policy, but more importantly, market expectations, not optimistic about the future market and weak market confidence.

He also pointed out that the number of steel exports has declined for three consecutive years, which should arouse the attention of the whole steel industry.