Jaway Stainless Steel

Chinese government hikes obsolete steel capacity cut target

China Ministry of Industry and Information Technology announced 2011 goals of eliminating outdated production capacity.

The steel making industry, which the government has been trying to consolidate bore the brunt of the crackdown and was ordered to slash 31.22 million tonnes of production capacity up by 17.7% from May target issued by the Ministry of Industry and Information Technology website.

Industries Jul'11 May'11 2010 Jul'11- May'11 Jul'11-10
Iron-making 3122 2653 3524.6 469 -402.6
Steel-making 2794 2627 876.4 167 1917.6
Coke 1975 1870 2586.5 105 -611.5
Ferroalloy 211 185.7 171.9 25.3 39.1

(In “10,000 tonnes)

Beijing has put industry restructuring at the top of its list of priorities for the 2011-2015 period as it tries to curb pollution and energy waste, as well as to encourage the development of high tech sectors. The statement identified 2,255 companies across 18 sectors along with specific volumes they need to pare back, including subsidiaries of large steelmakers and smelters.

Beijing said it would target 96 iron smelters to slash 31.2 million

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tonnes of capacity as well as 58 steel mills to pare a total of 27.9 million tonnes of output.

Companies affected include subsidiaries of larger steelmakers like Shougang Group Corp, Hebei Iron & Steel Group and Baosteel Group Corp.

Explosive expansion in the past few years has made China the top producer in the USD 500 billion global steel industry with the nation now accounting for about half the world's total output after ramping up production to fuel its rapid growth.

However, the government said the fragmented sector which has thousands of steel mills spread over state owned groups ranging from Baoshan Iron and Steel to much smaller private backyard smelters, wastes resources has high costs and has no say in negotiations for raw materials.

China drive to consolidate the steel sector is built on hopes to forge a handful of large global groups and have more clout during yearly negotiations with material suppliers such as Rio Tinto.

The government also aims to get rid of 19.76 million tonnes of coke production capacity up by 5.6% from its earlier target.