The nation's loss-making steel industry must do more to tackle excess capacity, including cutting as many as 500,000 jobs, according to a report posted Sunday on the website of the Beijing-based Economic Observer newspaper.
A China Iron and Steel Association (CISA) press release Friday said that somewhat more than 50 percent of the nation's steel mills lost money in 2015, with association members posting a combined shortfall of 64.53 billion yuan ($9.82 billion).
In 2014, these companies made a combined profit of 22.59 billion yuan.
CISA member companies' sales in 2015 reached 2.89 trillion yuan, down 19.05 percent year-on-year. The companies paid taxes of 63.23 billion yuan, down 22 percent from 2014.
The CISA said that longstanding end users such as housing and traditional manufacturers in areas including mining, telecommunication hardware and vehicles, experienced slowing growth and shrinking demand in 2015. That situation put pressure on steel mills, which are near the top of the industrial chain.
For the first time since 1981, China saw an annual drop in raw steel output in 2015, with 803.82 million tons produced - 2.33 percent lower than in 2014.
China will cut crude steel production capacity by 100 million to 150 million tons, according to a statement issued after an executive meeting of the State Council, China's cabinet, on January 22.
According to calculations by the Economic Observer, that will mean the loss of about 500,000 jobs. The calculation is based on per worker output at China's steel mills.
"Most of the job losses will come at low-end, polluting steel mills, as these are the main target of the ongoing battle against overcapacity," Wu Chenhui, a Beijing-based independent analyst, told the Global Times Sunday.
The CISA said the industry needs a mechanism that will allow unprofitable producers to exit the market rather than become zombie companies.
The Economic Observer cited industry data that show more than 80 medium-sized and large steel mills consistently have aggregate debt exceeding 3 trillion yuan.
From July to December in 2015, eight listed steel companies including Baotou Iron and Steel (Group) Co, Ling Yuan Iron and Steel Co and Fushun Special Steel Shares Co received subsidies totaling 2.92 billion yuan, the report said, citing data from industry portal custeel.com.
"The handling of existing debt and work force reemployment are key issues to be addressed within the exit mechanism," said Liu Xinwei, a steel industry analyst with Shandong Province-based consultancy Sublime China Information.
Liu noted that the central government has pledged policy support for the exit mechanism.
"While the overcapacity issue in low-end steel persists, there's huge demand for steel that can be used by high-end sectors. Those users even require imports of such advanced steel," Liu told the Global Times Sunday.
In 2015, mills with production capacity of 67.25 million tons stopped operating, and more than 30 companies completely halted production. Most of those mills were privately owned, according to the Economic Observer.
