http://blogs.wsj.com/chinarealtime/2014/01/20/beijing-lays-siege-to-chinas-steel-output/
Beijing Lays Siege to China’s Steel Output
China’s steel mills posted record-high output in 2013. But as China’s economy slows, official data show its crude steel production also ebbing.
The steel slowdown began in September, with the deceleration becoming most marked in November. In December, daily average production of the industrial metal fell to 2.01 million metric tons, China’s lowest level for the year.
The slide stems in part from an all-out campaign that President Xi Jinping’s government is waging to cut the industry’s bloated capacity and environmental pollution. China produces about half the world’s steel, and the amount of redundant capacity in the country is more than the annual steel output of the U.S. The overproduction has already weakened Chinese steel prices, which ended the year 7.2% lower than when 2013 began. Global composite carbon steel prices followed the trend, falling 2% last year, according to data from the consultancy MEPS.
The Chinese government is targeting Hebei province, which churns out a quarter of the nation’s steel. Monday’s data reflect a chronology of policy measures the Xi administration has taken. In September, Xi ordered Hebei leaders to undergo a Mao-style “self-criticism” session, where provincial chiefs were forced to acknowledge that they had wrongly prioritized breakneck steel production levels at the expense of the “quality of development.”
In November, Beijing made its policy priorities clear in a decade-spanning development blueprint that it took aim squarely at reducing industrial overcapacity. That same month, Hebei provincial leaders organized a showy demolition of mothballed steel furnaces, a theatrical display meant to signify the beginning of a “less is more” era for Chinese steel.
On Monday, Beijing said China’s overall economic growth in the fourth quarter last year reached 7.7%, with momentum weakening from 7.8% in the third quarter. “In the first quarter of this year, economic momentum may maintain the downward trend seen in the fourth quarter of 2013,” UBS analyst Wang Tao said.
This is significant for the steel sector because much of the slowdown is in investments in the steel-reliant infrastructure sector, Ms. Wang said. Chinese leaders are committed to reform measures meant to remake the economy so that it would rely more on domestic spending rather than state-led investment.
This doesn’t mean China’s steel mills will collapse overnight. They are still a powerful force with a lot of vested interest in propping up local-government revenue and regional employment, so analysts say it will likely take some time before the government effects real changes. Last year, steelmakers put out a combined 779 million tons of crude steel, another record year.
The 2013 volume overshot even an estimate in August by China’s top listed steelmaker, Baoshan Iron and Steel Co.600019.SH -0.27% China’s mills are still making around 11% more steel than the country consumes, Baoshan Chairman He Wenbo said.
If the Xi government succeeds in forcing steel mills to cut overall crude-steel output this year, it will a landmark event. According to available official data, China has never posted an output reduction in 35 years.
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Beijing Lays Siege to China’s Steel Output
China’s steel mills posted record-high output in 2013. But as China’s economy slows, official data show its crude steel production also ebbing.
The steel slowdown began in September, with the deceleration becoming most marked in November. In December, daily average production of the industrial metal fell to 2.01 million metric tons, China’s lowest level for the year.
The slide stems in part from an all-out campaign that President Xi Jinping’s government is waging to cut the industry’s bloated capacity and environmental pollution. China produces about half the world’s steel, and the amount of redundant capacity in the country is more than the annual steel output of the U.S. The overproduction has already weakened Chinese steel prices, which ended the year 7.2% lower than when 2013 began. Global composite carbon steel prices followed the trend, falling 2% last year, according to data from the consultancy MEPS.