According to Italian maritime brokerage house Banchero Costa’s China Iron Ore and Steel Outlook report, China’s steel output was previously thought to have peaked over 2013-2014 as steel mills faced increasingly tough environmental regulations, tighter credit and capacity curbs. After rather flat-to-negative growth in 2014-2015, China’s steel output improved only slightly in 2016, increasing by 0.6 percent year on year to 808.4 million mt.
However, in 2017 China’s steel output saw a recovery. Based on annual data from the National Bureau of Statistics of China, Chinese steel output in 2017 increased by 2.9 percent year on year to 831.7 million mt. Output from China’s steel mills had been supported over the year by strong steel prices sustained by ongoing capacity cuts targeting low quality furnaces, and decent demand from construction and manufacturing.
The Banchero Costa report said that, according to China’s Ministry of Industry and Information Technology (MIIT), the country slashed its crude steel production capacity by more than 50 million mt in 2017. On top of these capacity cuts, China has also shut down the production of 140 million mt of illegal low-grade steel produced from scrap metal.
According to the report, as the country continues to ramp up efforts to reduce excess capacity, China now aims to meet its long-term target of eliminating 150 million mt of steel production capacity this year, two years earlier than the planned 2020 target. China will also begin carrying out checks in the first half of the current year on closed induction furnaces to prevent them from resuming production. Additionally, in January this year China issued stricter rules for building new steel production capacity to replace obsolete facilities, allowing only one metric ton of new capacity to be built for a minimum of 1.25 mt of old capacity closed in environmentally sensitive regions. The moves underscore China’s determination to curb growth in its massive steel sector, and are largely expected to also reduce the country’s steel production growth this year. China’s Ministry of Environmental Protection is also said to be drawing up plans for tougher curbs on smog for the next three years, which could indicate stricter winter steel production curbs towards the end of the current year.
Meanwhile, China’s steel exports have been decreasing since 2016. Exports decreased by three percent year on year to 109 million mt in 2016, and continued to decline in 2017 by 30.6 percent year on year to 75.6 million mt. This fall has been largely attributed to improved domestic demand and Beijing’s resolve to tackle overcapacity. More stringent trade measures by importing countries have also contributed to lower Chinese exports. The Banchero Costa report stated that, if China’s steel prices remain high, capacity cuts proceed and domestic demand remains supported, lower steel exports could continue.