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    Economy

    Clock ticking on steel, coal capacity cuts for 2016

    1
    2016-08-09 09:26Global Times Editor: Li Yan

    Provinces delay as prices bottom out but it's a false dawn: experts

    Prices have bottomed out recently, but China's steel and coal markets remain seriously oversupplied and local authorities need to move faster to cut overcapacity, experts said on Monday.

    An inter-ministerial meeting last week on resolving overcapacity in the steel and coal sectors found that in the first seven months of this year, only 47 percent and 38 percent of the capacity reduction targets were met for steel and coal, respectively, the People's Daily reported on Friday.

    Progress has varied among provinces, the Shanghai Securities News reported on Monday.

    East China's Zhejiang Province and other three provinces have already accomplished their annual steel capacity reduction targets. But eight other provincial-level regions, including North China's Hebei Province and Northeast China's Liaoning Province, have only reached 10 percent to 35 percent of their annual targets. And a dozen provinces haven't even gotten started, the report said.

    "In the past, we eliminated a lot of outdated steel capacity that didn't meet the requirements for environmental protection and product quality, but now most of the excess capacity is classified as advanced production, making it hard for local authorities to get rid of it," Feng Liguo, an expert at the Beijing-based China Enterprise Confederation, told the Global Times on Monday.

    As to coal, many provincial authorities have deferred action on at least 50 percent of their annual targets to the fourth quarter, the report from the Shanghai Securities News said.

    This year, China plans to slash steel capacity by 45 million tons and coal capacity by 250 million tons, according to the National Development and Reform Commission (NDRC), the country's top economic planner.

    Xu Shaoshi, head of the NDRC, said at the inter-ministerial meeting that recent price rises have undermined the determination of some local governments and companies to shutter capacity.

    Many producers prefer to wait and see before taking the next move, leading to the slow progress in cutting capacity, Feng noted. "Even though prices recovered a little bit, it doesn't necessarily mean that the oversupply problem in the market has been resolved," Feng said. Prices "just bottomed out."

    According to Zhang Lin, a senior analyst with dz18.com, a steel supply chain e-commerce platform, the recent uptick in steel prices mainly reflected the impact of movements in the financial and futures markets on prices for physical steel, as well as increased ex-factory costs.

    The recent price rebounds weren't sustained and "were mainly driven by -temporary factors, indicating that demand is not strong and the market remains oversupplied," Zhang told the Global Times on Monday.

    Also, it is unclear how local authorities will cut capacity, Zhang noted. If they just shut down production lines, it will be easy for mills to restart operations any time the market recovers.

    And despite the slow progress in capacity-cutting, China's first-half coal output slid 9.7 percent year-on-year to 1.63 billion tons, according to a statement released by the NDRC on Monday.

    The decline was mainly due to decreased consumption and increased imports. During the first half of this year, coal consumption fell 5.1 percent year-on-year to 1.82 billion tons, while coal imports jumped 8.2 percent to 110 million tons, the statement said.

    The NDRC's statement gave a boost to coal shares, with Yanzhou Coal Mining Co, Shanxi Xishan Coal and Electricity Power Co and Shaanxi Heimao Coking Co all surging by the 10 percent daily limit.

      

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