BEIJING (Scrap Monster): The research report released by Greenpeace indicates that Chinese steel operating capacity increased during 2016, despite government’s efforts to curb excess steel production in various steelmaking provinces. The study conducted jointly with Custeel-a steel consultancy led by China Iron and Steel Association (CISA) reveals that the country registered net capacity increase in 2016. Also, a total of ten Chinese provinces increased their steel operating capacity.
According to the report, 72.48% of the steel production capacity reduction during the year was actually closed down or idle. As per statistics, 26 provinces achieved total reduction of 84.9175 million tons in steel production capacity, out of which 61.545 million tons was idle capacity. This means that the provinces were able to achieve shutdown of only 23.3725 million tons of operating capacity during the entire year 2016. The overcapacity reduction claimed by 14 provinces represented idle capacity. For example, the overcapacity reduction in Shanxi, Gansu and Guizhou provinces was idle and involved outdated equipment.
Also, increase in steel demand on account of government stimulus measures and curtailed supply due to capacity closures resulted in restart of 49 million tons of previously suspended steel capacity. In addition, nearly 12 million tons of new capacity was added despite government’s action plan to curtail capacity. As a result, China registered net capacity increase of 36.5 million tons during 2016. Three neighboring provinces-Hebei, Shanxi and Tianjin accounted for almost 80% of the net increase in capacity. The operating capacity increase equaled almost double the total steelmaking capacity of the UK.
A total of 85 million tonnes of annual steel capacity was shut in 2016, clearly exceeding the national target, despite the lack of effectiveness in these efforts. According to official figures released by the Chinese administration, the country’s total steel capacity stood at 1.1 billion tonnes in 2016, clearly down when compared with earlier estimates, but still indicating a surplus of nearly 300 million tonnes. The country’s National Development and Reform Commission (NDRC) expect to shut additional 45 million tonnes of steel capacity in 2017.
The report calls upon Chinese government to immediately address the shortcomings of overcapacity reduction efforts in 2016. It notes that most of the capacity elimination target set for 2016-2020 period has, technically, already been achieved. It warns that capacity elimination in 2017-’20 will remain much more modest unless the targets are increased. If capacity closures continue to be dominated by idle capacity, the net operating capacity is feared to increase by up to 20 million tonnes during this period.
The report recommends demolition of closed facilities than sealing them up, so as to prevent future restarts in order to achieve genuine reduction in operating capacity. Also, provincial governments must concentrate on elimination of inefficient and highly polluting capacity to generate maximum environmental and economic benefits. In addition, efforts should be made to promote mergers and acquisitions among steel companies.