China has rolled out a new steel industry action plan that includes a basket of measures to deal with the chronic oversupply problems plaguing the sector, as Beijing steps up efforts to end a string of price wars raging across the economy.
The plan, which includes a strict ban on additional capacity and moves to accelerate the phase-out of outdated equipment, could become a blueprint for other industries suffering from overproduction and excessive competition, analysts said.
Released by the Ministry of Industry and Information Technology in collaboration with several other government departments on Monday, the document called for precise controls on steel capacity and output, while stressing that “coordinated efforts on both the supply and demand ends” were needed to stabilise the industry.
The aim is to “accelerate the transformation from old to new growth drivers, cultivate new productive forces, and further enhance the resilience and security of industrial and supply chains”, according to the plan.
The steel industry should target average annual growth of about 4 per cent in value-added output over the next two years and ensure that ultra-low emission upgrades are completed on more than 80 per cent of steel production capacity by the end of this year, it added.
Analysts said the policy could serve as a model for tackling disorderly competition across the economy. Beijing has repeatedly warned in recent months about the dangers posed by neijuan – cutthroat competition that drives down prices and undermines profitability in sectors struggling with weak demand.
Citic Securities noted in a research report in late August, per the domestic media outlet Wallstreetcn.com, that policies targeting neijuan in the steel industry were imminent, with the industry potentially acting as a test case for a wider roll-out.
Despite accounting for more than half of global output, China’s listed steel companies registered an average profit margin of -0.26 per cent last year due to the structural issues in the industry, according to the report.
Citic Securities analysts said the key to improving profitability in the industry would be production curbs combined with measures designed to promote a virtuous cycle of greater innovation, stronger competitiveness and higher earnings among producers.
China’s steel sector remains under pressure, with output and inventories continuing to climb while consumption declines, according to the latest industry data.
Output of five major steel products as of mid-September stood at 7.44 million tonnes, up about 5.8 per cent year on year, according to figures from CINDA Securities. Social inventories were up 12.1 per cent year on year at 11.01 million tonnes, while consumption was down about 4.6 per cent year on year at 8.50 million tonnes.
The composite price index for ordinary steel stood at about 3,507 yuan (US$493) per tonne, up about 2.6 per cent from a year earlier but down around 14 per cent from 2023 levels, the data showed.
In July, central government inspectors audited the steel industries in several regions, criticising several localities for illegally expanding capacity, recklessly launching new energy-intensive and high-emission projects, and even persisting with violations despite repeated warnings.
The inspection authorities stressed that it was vital for local governments to strictly implement industrial regulations and resolutely curb unlawful capacity expansion.