How much Capacity Cut may happen in Chinese Steel Sector in 2019?

According to the latest updates, China may set a target of eliminating 20 MnT of crude steel capacity this year, thus continuing its efforts to reduce capacity after pre-achieving its 2016-20 target last year.

"There are still some provinces that have not accomplished their individual 13th five-year plan targets which would come to around 20 MnT in total. We will continue to support them to achieve their targets," said China's minister for industry and information technology Miao Wei.

He also added that China has exceeded its target of eliminating 30 MnT capacity in 2018. The country had set a target of eradicating 150 MnT of crude steel capacity in the time span of five years from 2016-20 but the same was pre-achieved in 2018.

China also phased out around 140 MnT of induction furnace-based steel capacity in 2017. Capacity reductions have played a key role in lifting the steel sector's profitability since 2016.

China's largest steelmaking province, Hebei has already announced its target of reducing steel capacity by 14 MnT in 2019 as against actual crude steel capacity reduction of 12.29 MnT in 2018. Over next two years, Hebei has set a target of reducing its steel capacity by 40 MnT.

However, according to the industry experts, capacity reduction is expected to pay a small role in reforming China's steel sector in the medium term as the government is focusing on shutting down smaller steel mills, increasing the size of mills through mergers and acquisitions and encouraging mills to shift capacity to coastal areas away from population centres.

The new facilities are going to have larger blast furnaces with better pollution control technologies. The focus on shutting down chronically loss-making mills and shifting capacity to overseas locations is also expected to continue.