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Steel Industry Insight

CISA: China is already doing its part in steel capacity reduction

Chi Jingdong, vice president of the China Iron and Steel Association (CISA), spoke in Milan on November 20 at a conference organized by the Italian steel distribution association Assofermet under the heading “Chinese steel meets European distribution in Milan”.

According to the CISA official, before 2015 China’s economic growth accelerated the country’s rapid increase of steel consumption, which drove the increase in Chinese steel capacity. However, as of 2015, with the drop in the growth rate of domestic steel consumption, the problem of oversupply of steel emerged. In 2015, the steel capacity utilization rate in China decreased to around 71 percent. In 2016, China eliminated 65 million mt of overcapacity, with its steel capacity utilization rate recovering to 75.5 percent.

In less than 15 years, as Mr. Chi said, the Chinese steel industry has changed considerably – currently, private sector steel enterprises in China account for more than 50 percent of crude steel output and are also dominant in number, while in 2003 crude steel output of non state-owned steel enterprises accounted for just more than five percent of the domestic total. In addition, in China there are no purely state-owned steel enterprises anymore, he stated.

The CISA vice president pointed out that China’s steel industry boasts several advantages, such as a high level of process equipment, many advanced enterprises, a complete product mix, a highly qualified labor force, and the world’s most integrated steel industry system. Moreover, through many years of’ investment, the environmental protection standards of Chinese steel companies have greatly improved and some of them have achieved world-advanced levels.

According to Mr. Chi, the increased enforcement of environmental protection will not exert a great influence on the overall production of the Chinese industry. It is inevitable that some enterprises in certain areas will be impacted during severe weather conditions, but this will not influence the general supply and demand situation. From a long-term point of view, with more and more stringent surveillance of enforcement of environmental protection regulations, more and more steel mills will consider including the cost of environmental improvements in their business accounting, thereby promoting fairer market competition, transformation and upgrading of the industry, as well as being beneficial for the long-term stable development of the steel industry.

Mr. Chi said that China’s steel industry will face new challenges in the coming period, as traditional driving forces have weakened: crude steel consumption per unit GDP and crude steel consumption per unit FAI have both decreased. In addition: economic growth has shifted from high-speed growth to high-quality growth, while the factors driving GDP growth have also changed.

The CISA official went on to speak about how China has pushed forward capacity reduction in the steel industry, saying that China is already doing its part in capacity reduction, pointing out that 100-150 million mt of capacity will be eliminated in China in the current five-year period. China’s tasks are: strictly prohibiting newly-added capacities, cutting overcapacity, strengthening environmental law enforcement and surveillance, and promoting industry upgrading. Mr. Chi then explained why Chinese steel production has kept increasing despite recent capacity reductions. He said that steel capacity depends on production factors, including the size of steelmaking equipment, the technological level and fuel and raw materials, while steel production relies on real market demand, guaranteed by steel capacity. Capacity reduction and increase or decrease of production is not contradictory, he said. In the first three quarters of 2017, the growth rate of crude steel output in China was slightly higher than in 2016, but the increase of China’s crude steel output is required by the country’s GDP growth rate of 6.9 percent, that is to say, the increase of steel output is due to the growth rate of the Chinese economy. Besides, the steel output increase has been calculated partly due to the filling of the gap in the market after the elimination of obsolete steel capacity.

The CISA vice president also sought to underline that overcapacity in the steel industry is not unique to China. He recalled that crude steel outputs in the US, Japan and the EU had all reached a record high in 1973 and then went into a period of adjustment. Developed countries depended on the international market to assimilate overcapacity. During this process, China imported a large amount of steel products from these countries. Since the end of 2015, China has taken the lead in resolving the issue of overcapacity, which is a voluntary, proactive, resolute and continuous action, as well as a requirement for its own development, and has made important contributions to the development of the world’s steel industry.

According to Mr. Chi, currently, economic ties among different countries are close and the tendency of globalization is not reversible in spite of some challenges. Protectionism can only protect for a short time, he said. In the long run, it will lead to backwardness of a country’s own industry and at the same time will harm downstream steel-using sectors and enterprises, impacting the improvement of their competitiveness. In spite of its high self-sufficiency rate for steel products, China still needs international cooperation and support in some key technologies.

As a net importer of steel products for a long time, China had imported a large quantity of steel products and equipment from abroad, in particular from EU countries, Mr. Chi stated. As of 2005, China became a net exporter of steel products. However, in 2016, China imported over 13.6 million mt of steel products, mainly from Japan, South Korea and the EU, while its main export destinations were Asian countries. Chinese steel exports to the EU accounted for less than six percent of its total exports.

Finally, Mr. Chi said he wanted to give some advice as regards addressing the challenges and difficulties facing the global steel industry. He stated that climate change is a common global issue, and that China has strengthened environmental protection and fulfilled its commitments. “Does this mean there aren’t any environmental problems existing in other countries and regions?” he asked. According to the CISA, steel is still a fundamental material to sustain the development of the world economy. Steel demand will show volatility in developed countries and will continuously grow in developing countries. To cope with the current challenges and difficulties, the CISA believes that large steel-producing countries should take common but differentiated responsibilities based on the principles of openness, inclusiveness, mutual benefits and a win-win scenario. The CISA, he said, also believes that trade conflicts should be treated in a rational way and be resolved through mutual communications, exchanges and international cooperation instead of simply by raising trade barriers. As a large steel producer, China is already doing its part and its objectives are: deepening supply side structural reform, achieving green and low carbon development, and setting up international cooperation platforms.

 

*This was published on SteelOrbis website on November 22, 2017.


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