Two words that, these days, go together more often than ‘love’ and ‘marriage’ are ‘China’ and ‘overcapacity’ and they appear to be affecting virtually every global industry, particularly metals.
Both the aluminium and the steel industry are blighted by Chinese overcapacity and the Chinese know it.
In fact, news reports coming out of the country suggest that eight Chinese steelmakers in Hebei province are taking direct action and dismantling 10 blast furnaces and 16 converters.
There is also news that a batch of measures will be taken, including restraining investment in newly built steel plants and imposing punitive electricity and water tariffs on outdated plants, claims a report by Global Times.
The Hebei steelmakers – Hebei is the China’s top steelmaking province where the aim, it seems, is to remove 60Mt of capacity – are located in Tangshan, Handan and Chengde and include the Chengde Iron & Steel Group and Tangshan Xingye Industrial & Trade Group Co.
But it's not just Hebei province that is under the cosh. Shandong in the east of China is also under fire along with four other provinces.
In Hebei the plan is to cut 60Mt by 2017 and this isn't necessarily good news for those involved. Wang Zhumin, chairman of Hebei Iron & Steel Group's Chengde subsidiary, said that demolishing a furnace will reduce the company's annual revenue by US$197 million and cost the company $49.2 million through the loss of a valuable asset.
It has been argued, however, that the cuts are purely symbolic and that the steel plants concerned have already ceased production. If this is true, then Chinese steel output will remain unchanged.
Hebei steelmakers have been blamed for severe pollution in Northern China, including Beijing.
Data from the Chinese Ministry of Industry and Information Technology show that the country's steel industry operated at 72% of capacity in 2012 when, by international standards, a range of between 80 and 85% is thought to be reasonable.
While capacity cuts appear to be the order of the day in China, however, it's important to remember that there is around 90Mt of iron and steel capacity currently under construction, according to Zhu Jimin, vice chairman of the China Iron & Steel Association (CISA).
Between 1-10 November this year, Chinese daily crude steel output was 2.1Mt, up 2.2% from the preceding 10-day period (CISA data).
Source: Shanghai Metals Market/Global Times