China Capacity Reductions Falling Short

The G-20 meeting resulted in a plan to ramp up capacity cuts in the second half although so far the industry has fallen short. The 2020 target for steel capacity reduction in China is 150 million tonnes, 13 percent of its total capacity.

Li Xinchuang, president of the Beijing-based China Metallurgical Industry Planning and Research Institute, comment in China’s steel industry in a September interview with The Australian.

According to Mr. Li, China steel production peaked in 2014 and since that time domestic real steel consumption has fallen 700 million tons—down 5.5 percent in 2015 and an additional 3.0 percent in the first half of 2016.

The decline was the driving force behind the increase in Chinese steel exports that were vital for the health of the China steel industry. In the first seven months of 2016, China exported 67.5 million tonnes of steel, an increase of 8.5 percent over the same period in 2015. Mr. Li says 15 percent of Chinese steel is currently exported.

The Australian reported that Mr. Li is concerned about shrinking world consumption of steel. The consumption decline in China was driven by the changing structure of the Chinese economy, said Mr. Li. Economic growth was previously driven investment and is now driven by consumption and the services sector, said Li, which is causing the Chinese steel market to shrink more than that of the rest of the world.”