China will step up efforts to promote the transformation and upgrading of the steel industry this year, according to the report on a draft plan for 2013 by the National Development and Reform Commission (NDRC) presented to the first session of the 12th National People’s Congress (NPC).

The key tasks are to optimise resources allocation and industry layout to resolve the problems of overcapacity, lack of core technology, and low added value facing the domestic steel industry.
China’s steel industry capacity has increased from 200Mt in 2001 to around 940Mt today while apparent consumption of crude steel remained at 710Mt in 2012 and is expected to reach 760Mt in 2013. In light of this, the steel industry has 180Mt excess production capacity.

Also, steel production capacity is unevenly distributed. North China’s Hebei province accounts for 25.7% of the country’s total steel capacity, while Shandong, Liaoning, and Jiangsu provinces together take up about 25%. The West China regions has just 14.8% of the total steel capacity.

Furthermore, the steel industry’s restructuring and pace of mergers and acquisitions (M&A) is slow and the industrial concentration is declining. The country’s top 10 steel groups produced 46.1% of the total output last year, down 3.1% from the previous year.

In January, China released guidance for accelerating the pace of M&As of companies in major industries and the steel industry was included in this guidance.

The report sets a target of raising the steel industry concentration to about 60% by forming three to five enterprises with core competitiveness and international influence by the end of 2015.

Currently, small and medium-sized steel companies are still expanding their capacity and risks of M&A in the industry remain high due to the industry’s depression. So it is difficult to significantly increase the industrial concentration in the short term. However, the draft plan and the guidance both send the clear signal that China will encourage steel companies to undertake large-scale restructuring to phase out outdated capacity. Leading companies are expected to further strengthen their advantage in the coming wave of industrial restructuring.

Source: China Metals e-mail