Twenty-nine Chinese steel firms have had their licences revoked as Beijing kept up its campaign to tackle overcapacity in the sector – just days after US President Donald Trump said he would open a probe into cheap steel exports from China and elsewhere.
Analysts say the revocations were unlikely to be a direct response to Trump’s plan, but rather a part of China’s reform measures aimed at reducing surplus steel capacity that many estimate at around 300 million tonnes, about three times Japan’s annual output.
The official China Daily said Washington’s move to investigate steel imports could trigger a trade dispute between the United States and its trading partners.
In Japan, the world’s second-biggest steel producer after China, the head of its steelmakers’ group expressed concern over Trump’s protectionist policy.
“We are greatly concerned over Trump’s protectionism, although we hear he has softened his tone on some issues with a grasp of reality,” Japan Iron and Steel Federation chairman Kosei Shindo told a news conference yesterday.
It’s all enveloped in this strategy to improve the financial condition of the industry which has been weighed down by excess capacity for some time partly as a result of inefficient operations
China’s Ministry of Industry and Information Technology released a list yesterday of 29 firms that will be removed from its official register of steel enterprises.
Most have already stopped producing steel, but some had illegally expanded production or violated state closure orders.
“It’s all enveloped in this strategy to improve the financial condition of the industry which has been weighed down by excess capacity for some time, partly as a result of inefficient operations,” said Daniel Hynes, commodity strategist at ANZ.
China is aiming to shed between 100 million to 150 million tonnes of excess capacity over the 2016-2020 period.
It also plans to shut around 100 million tonnes of low-grade steel production by the end of June.
Another 40 steel firms were asked yesterday to make changes in areas such as environmental protection and safety.
The majority of the companies were accused of failing to comply with emergency output restrictions during heavy pollution periods, and they must fully “rectify” their violations within a prescribed period, the industry ministry said, without giving a specific time frame.
Hynes said China may take a more gradual approach in shutting inefficient mills rather than force “a lot of closures at once” and cause a spike in steel prices, which is what happened in the third quarter last year.
China set up an official steel firm register in 2009 to impose order on the poorly regulated industry and to help companies during price negotiations with iron ore suppliers overseas.
The register was also supposed toidentify the mergers and closures required to meet a target to put 60 per cent of China’s steel capacity in thehands of its 10 biggest producers by the end of 2015.
However, industry consolidation rates actually fell to 34.2 per cent over the 2011-2015 period, from 48.6 per cent in the previous five-year period, and China has now pushed back the 60 per cent target until 2025.
According to figures published by the official China Metallurgical News earlier this month, 292 out of a total of 635 firms in 12 provinces and cities have already ceased production or shut down completely.