China combats steel overcapacity

China will combat steel overcapacity through a batch of measures including strictly restraining investment in newly built steel plants and imposing punitive electricity and water tariffs on outdated steel plants, the country's top economic planner said Monday.

The country will focus on promoting industrial structure adjustment in six provinces including North China's Hebei and East China's Shandong, according to a statement released by the National Development and Reform Commission (NDRC) on Monday.

Eight steel plants in Hebei, the country's largest steel producing area, dismantled on Sunday 26 furnaces with a total iron and steel production capacity of 11.36 million tons.

The campaign was under the guidance of the provincial government, and marked a start for the province in cutting one-third of its iron and steel producing capacity or about 60 million tons by 2017.

"Demolishing a furnace has caused an asset loss of 300 million yuan ($49.2 million) and will reduce the company's annual revenue by 1.2 billion yuan… more than 800 employees need to be resettled," Wang Zhumin, chairman of Hebei Iron & Steel Group's subsidiary in Chengde, was quoted by Securities Daily as saying in a report published Monday.

"The move has showed that the provincial government is under huge pressure to cut steel capacity and tackle air pollution, as it was widely blamed for causing severe pollution in North China regions including Beijing," Hu Yanping, an industry analyst at custeel.com, told the Global Times on Monday.

But Hu said the campaign is more symbolic, as many of these dismantled furnaces had already stopped production since the beginning of this year, so the actual steel output will not be much affected.

Other measures to curb steel overcapacity include implementing punitive electricity and water tariffs to force outdated steel mills to exit the market, building an information warning system on steel overcapacity, and supporting steel mills to expand overseas markets, according to the statement.

"These measures are not new, and whether they could help curb steel overcapacity will depend on the implementation," Li Zhi, an analyst at commodity consultancy Sublime China Information, told the Global Times on Monday.

China's steel-making industry operated at 72 percent of capacity in 2012, data from the Ministry of Industry and Information Technology showed. According to international standards, the capacity utilization rate between 80 and 85 percent is a reasonable range.

Furthermore, there is around 90 million tons of iron and steel capacity that is under construction or has been approved across the country, Zhu Jimin, vice chairman of the China Iron and Steel Association (CISA). said in an industry forum held in Guangzhou, capital of South China's Guangdong Province, on Thursday.

Despite the country's efforts to curb steel overcapacity, China's average daily crude steel output rose to 2.144 million tons between November 1 and 10, up 2.2 percent from the preceding 10-day period, the latest data from the CISA showed.

"A lot of guidelines and regulations have been rolled out by authorities to curb overcapacity, but administrative meddling has not worked well so far," Hu said. "The government should let market forces play a more important role in solving the overcapacity."