China to Accelerate Steel Capacity Cuts After Missing Targets

  • Coal capacity reduction through July at 38% of annual goal
  • Higher prices spurred wavering in mission to reduce supply

China plans to step up efforts to reduce overcapacity in its steel and coal industries after falling behind schedule in the first seven months, helping lift steel prices to their April highs on Tuesday as traders bet that supply will tighten.

The world’s biggest steel producer only managed to hit 47 percent of its full-year capacity-reduction target for the metal through July, and 38 percent for coal, the top economic planner, the National Development and Reform Commission, said Tuesday. Some regions have wavered in their determination to trim capacity after a recovery in prices this year, spokesman Zhao Chenxin said at briefing in Beijing.

Industrial commodities have rallied in 2016 after China’s policy makers boosted stimulus to stabilize an economy that’s seen its weakest growth in decades. The government’s plan to cut as much as 150 million metric tons of steel capacity over five years as part of its so-called supply-side reforms have raised prices and spurred mills to increase output to capture higher margins.

“The recent pick-up in steel and coal prices has swayed the determination of some enterprises and regions in cutting steel and coal capacity,” Zhao said. “The NDRC will undertake measures to speed up the progress of capacity reductions.”

Prices of reinforcement bar climbed 3.8 percent to 2,669 yuan a metric ton on the Shanghai Futures Exchange by 1:39 p.m. local time, set for the highest close in about four months. The benchmark steel product has advanced 50 percent this year. Coke futures surged 6 percent on the Dalian Commodity Exchange on Tuesday, while coking coal rose 1.9 percent.

China plans to eliminate 45 million tons of crude steel capacity this year. About 21 million tons has been cut through July, according to Zhao. It’s also reduced coal capacity by about 95 million tons, compared with an annual target of 250 million tons.

— With assistance by Jasmine Ng, and Yinan Zhao

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