The Ministry of Industry and Information Technology of the People’s Republic of China (MIIT) has revealed that it is preparing an ‘Action Plan for the Transformation and Development of the Steel Industry (2015-2017)’.
The action plan is expected to be formally introduced by June (2015) if the current progress in the country’s steel sector is maintained.
Over capacity and the low profitability of the steel industry has been a concern in China in recent years. Coupled with environmental issues and the high energy consumption of smaller steel mills, the central government is now readying itself to put action in place to rectify the situation.
Faced with the threat of 2008’s global recession, in an effort to combat the adverse affects the Chinese government released loans of RMB 4 trillion (US$586bn) in a stimulus programme mainly targeted at the country’s production industry – including the steel sector.
But as the investment from the banks continued for a number of years, capacity and steel production far outstretched demand and desire for the product. Over-capacity was estimated to be at 200 million tonnes in 2012, rising to estimates of 300 million tonnes of surplus capacity by the end of 2013. This has also had huge ramifications on profitability in the business as a result.
By the end of 2014, the production capacity of crude steel in China had mounted to 1.16 billion tonnes, with the amount of crude steel produced at 820 million tonnes (accounting for 49.4% of total global steel production) – an increase of 0.9% compared to 2013. While the rate of growth has slowed, it is still growth nonetheless. Yet, apparent consumption of crude steel in 2014 was 740 million tonnes, a decrease of 4%.
From a financial perspective, the total profit of the top 20 enterprises that made profit in 2014 was RMB 28bn – accounting for 92% of the total profit of the industry. But there were as many as 19 enterprises with their books in the red and total losses of RMB 11.6bn. Meanwhile, costs continue to rise; the total financial cost of major large and medium steel enterprises in 2014 rose 20% to RMB 93.8bn.
Some banks have imposed strict control of loans to steel enterprises and consequently a few enterprises have stopped production or have even been declared bankrupt.
According to the figures from China Iron and Steel Association, there are still more than 500 steel enterprises in China, of which there are more than 400 private enterprises.
Now, the MIIT’s plan reportedly aims to compress 80 million tonnes of steel production in three years time to alleviate the over capacity situation. It will also seek to build 2-3 ‘intelligent’ demonstration plants and, within the same timeframe, encourage mergers and acquisitions – and restructuring – within the industry. This will, it is explained, see the number of steel enterprises controlled at around 300.
Further still, the total energy consumption of the industry will not increase, and the total emissions of pollutants are projected to drop.
Fears have lingered in recent years that if the Chinese steel market were to experience a collapse, or reduced levels of production, those companies supplying gases to the manufacturing process will in turn feel the impact of any downturn – as explored by gasworld’s December 2013 hot topic (see link right, China Steel Sector on a Knife Edge).
Many of the major industrial gas companies have supply contracts with Chinese steel manufacturers for large amounts of product, though a lot of steel mills operate with captive gas plants and even very old steel plants that do not even use oxygen.