China's steel industry will phase out 27 million tons of capacity during the year

At the 8th China International Iron and Steel Conference held on May 18, new data was revealed showing that China's steel capacity utilization rate remains below 76%, with excess production capacity estimated to be between 180 million and 240 million tons. Su Bo, vice minister of the Ministry of Industry and Information Technology, emphasized that this year’s priority is to eliminate 27 million tons of outdated steel production capacity, a goal already outlined in Premier Li Keqiang’s government work report. The plan aims to accelerate the elimination of overcapacity and improve industry efficiency. According to Xu Lejiang, president of the China Iron and Steel Association and chairman of Baosteel Group, member companies have seen a significant drop in steel prices—by 1,026 yuan per ton since 2011—due to overcapacity, low industry concentration, and imbalances in iron ore supply and demand. Additionally, environmental regulations and green development initiatives are pushing companies to rethink their strategies. Zhang Zhixiang, chairman of Beijing Jianlong Heavy Industry Group, highlighted that current capacity utilization is still below 76%, with severe overcapacity in products such as plates, hot-rolled wide strips, stainless steel, and seamless pipes. Su Bo reiterated the need to strictly control new steel capacity and focus on eliminating outdated facilities as a key step in addressing overcapacity. He also noted that since 2010, China has already eliminated 85 million tons of ironmaking capacity and 57 million tons of steelmaking capacity. This year’s target is to remove an additional 27 million tons of outdated steel production, aiming to complete the "Twelfth Five-Year Plan" one year ahead of schedule. Over the next five years, from 2013 to 2017, the goal is to cut more than 80 million tons of steel capacity, bringing utilization rates to a more sustainable level. Liu Shijin, deputy director of the State Council's Development Research Center, believes that after China’s economic reforms, the steel industry is poised for long-term international competitiveness. He predicts that the sector will enter an accelerated phase of mergers and acquisitions, driven by market forces and institutional adjustments. He pointed out that the era of large-scale expansion has passed, and now the industry must adapt to stricter environmental standards and technological advancements. Liu stressed that the market should play a central role in driving mergers and acquisitions, with reforms to the market access system based on a negative list principle. Establishing a unified and competitive market is essential to enable efficient restructuring in overcapacity sectors.

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