Cutting steel output is the journey, not the goal - CISA

China's determination to cut domestic steel output in 2021 should not be seen as a target, but rather a means to achieve the high-quality development and upgrading of the steel industry, according to He Wenbo, executive chairman of China Iron and Steel Association.

In late January, China's Ministry of Industry and Technology (MIIT) caused some consternation in the steel sector by declaring that domestic crude steel output in 2021 should be curtailed to below the volume in 2020 of 1.065 billion tonnes. Steelmakers and traders expect that domestic steel consumption will probably continue rising this year, so a reduction in output could create issues, as reported.

But in an interview with China Metallurgical News (CMN) published on March 3, He reinterpreted the ministry's comment in the context of sustaining the demand and supply balance.

Speaking on the sidelines of the 'Two Sessions' political meetings in Beijing, He said that cutting crude steel output is a means to maintain the balance in steel resources and to accomplish China's goal of reaching peak carbon emissions and realizing carbon neutrality, and that reducing output will be conducive to the high-quality development, transformation and upgrading of the steel industry. "From this view, our focus is not only the total amount, but also the optimization of the structure," he told CMN.

"What needs to be stressed is that in the short term, steel production may reach the peak during the early stages of the country's 14th Five-Year Plan period over 2021-2025. And in the long run, the designing and construction of the new steel capacity may not need to be based on the highest steel demand," He also noted.

According to him, China's domestic steel capacity has been able to meet overall demand, and should there be some temporary shortfall in steel availability, the gap can be filled by steel imports.

"We need to re-investigate the issue of steel imports and exports." He remarked. The primary task of the steel industry is to ensure supply, and steel imports and exports play a key role in regulating the supply, he elaborated. "Thus, we can anticipate a moderate increase in some primary steel products' imports such as billet to meet the domestic steel demand."

Nevertheless, strengthening market monitoring is also necessary while the country increases steel imports, He suggested. While expanding imports to meet domestic market demand, unfair competition, excessive imports or imports of unsuitable items that might impact the home market and harm Chinese steel mills' interests should be prevented, He explained.

As for cutting crude steel output, He mentioned that the production reduction should focus on those steelmakers not abiding by laws and regulations. Meanwhile, cutting carbon emissions and adopting environmentally sustainable production methods can be the guidelines the industry needs to work to, he suggested, and those integrated mills or electric-arc furnace steel plants meeting ultra-low emission standards should not be required to suspend or restrict their production.

However, He also mentioned that the related policy shift on cutting crude steel should not be embraced too hastily and that any production curbs should be moderate in order to avoid any violent volatility in steel markets.

Regarding investment in steel sector, He argued that capital spending should not only be about scale. "We need to encourage more investment in directions such as improving steel quality, eco-friendliness and artificial intelligence to promote the transformation and upgrading of China's steel industry," he said.

Written by Victoria Zou, zyongjia@mysteel.com

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