Beijing Verifying Steel Capacity, Output Across China

China's central government has launched a round of thorough checks to determine actual steel output and existing steel capacities in all provinces, autonomous regions and municipalities nationwide, intending to have an accurate and clear picture of the country's steel industry when the audit is done, an official from the one of the three governing bodies in charge of the task confirmed on Wednesday.

The government bodies conducting the investigation are the National Development and Reform Commission, the Ministry of Industry and Information Technology, and the National Bureau of Statistics (NBS), and a notice, jointly stamped on November 4 was distributed to related local authorities tier by tier but not shared on any of the three government websites, the official confirmed.

"As required, all the provinces are supposed to submit a summary with all the required details about individual steel producers under their jurisdiction by November 29, but I think it will take much longer than that if we want to collect all the information," the official said, emphasizing that "the quality and accuracy of the details are the priorities."

The painstakingly thorough inspection of steel mills one-by-one including their output, capacity, and fixed asset investment over 2015-September 2019, is to arm Beijing with a complete understanding of this industrial sector, so that the central government will know for sure what it has achieved by way of cutting excess steel capacity and industrial restructuring so far during the 13th Five-Year Planning Period over 2016-2020, he added.

The audit is also aimed at shedding some light on what Beijing needs to focus on during the coming five years in terms of the country's steel industry restructuring and optimization, Mysteel Global was told.

The joint notice admitted that some Chinese steel mills' capacity utilization rates exceed 100%, with some even surpassing 150% so far this year based on the record, and the three governing bodies, thus, requested that all steelmakers submit their steel output for the first nine months, and those reporting increases at over 10% year-on-year or whose annualized capacity utilization exceeds 100% need to provide valid reasons for the over-performance.

"China's steel output has been growing rather fast so far this year, and we need to know why; is it because of more scrap utilization, less downtime on facilities with only minimum maintenance being done, technological upgrading or simply because (mills') earlier statements regarding capacities were untrue," the official said.

Actual capacity utilization may exceed designed capacities as many components can be maximized and optimized to surpass the design limits, he acknowledged.

For now, China's official estimation of the country's steel capacity is slightly above 1 billion tonnes, which, however, may not be accurate after all, as the capacity is dynamic, and it may vary from time to time, according to the official.

Over January-October, China's steel output grew 7.4% on year to 829 million tonnes, with the growth having eased from the 10.2% year-on-year growth witnessed over the first five months of 2019, according to the NBS data.

However, the industry's performance is still in the danger zone where the whole 2019 crude steel output could exceed 1 billion tonnes for the very first time in China's steel industry history if the Chinese steel mills do not rein in their output during the last two months of this year, Mysteel Global notes.

"One billion tonnes will be a nerve-wracking level for steel market participants inside and out of China, and we will have some serious explaining to do to the global steel community to justify the number," the official admitted candidly. "This thorough check will also enable us to do so if we have really hit that level," he told Mysteel Global.

This article has been published under an article exchange agreement between Mysteel Global and SteelMint.