China’s National Development and Reform Commission (NDRC) and Ministry of Industry and Information Technology (MIIT) are joining together to formulate a proposal to solve excess capacity in fiveindustrial sectors: steel, aluminium, cement, plate glass and shipbuilding.

The way to solve excess capacity they say is to eliminate part of the obsolete capacity via market mechanism and bring the rate of capacity utilization up to around 80%. It currently averages 74.9% in the iron & steel sector.

MIIT is now examining a second batch of steel companies to see whether they meet requirements stipulated in the industrial regulations. The examination is expected to be completed before the end of November when more steel plants will be put on the blacklist and face discriminated electricity tariffs, tightening bank loans and administrative accountability. However, for qualified steelmakers, the country will give policy support for M&A and technology upgrading.

MIIT will make spot inspections on some companies to intensify the check. According to the report, some 45 steel mills, which account for 41.4% of the total steel capacity, will be examined this year. By the end of the next year, MIIT is expected to take 80% of the domestic steel production capacity into its scope of regulation.
Since the beginning of this year, China has rolled out a series of measures to control overcapacity. Statistics from the China Iron and Steel Association showed that the country’s steel production capacity reached about 976Mt in 2012, but only 74.9% was used. Based on a target 80% utilisation rate this means 195Mt of overcapacity exists.

China’s central government has identified solving excess capacity as one of its priorities this year.
On July 25, MIIT issued the first batch of outdated capacity elimination targets for 2013, involving 19 industries, including steel, copper, primary aluminium and zinc.

According to the first batch of elimination targets, MIIT will eliminate 2.77Mt of outdated ironmaking capacity and 6.98Mt of outdated steelmaking capacity. In the non-ferrous sector it plans to reduce capacities of 654400t of obsolete copper, 260000t of outdated aluminium, 807000t of outdated lead and 145500t of outdated zinc capacity.

The first batch of 199 high-pollution steel companies in Tangshan city of North China’s Hebei Province was closed in May this year. Hebei’s steel production accounts for 25% of the country’s total while Tangshan produces about half of Hebei’s steel output.

Source: China Metals e-mail