According to an official report released on Wednesday, China is planning to address its massive steel sector’s overcapacity by reducing output, though it has not specified any quantitative targets.
As the world’s top steel producer and consumer, China announced its intention to restructure the industry through these production cuts. The report detailed plans to tackle structural issues in critical industries and eliminate intense competition by regulating and upgrading the sector.
While it hasn’t provided specifics on the scale of output reductions, recent declines in steelmaking ingredient prices have fueled speculation that Beijing may trim about 50 million metric tons of crude steel output.
Citi analysts noted that this attempt marks the first instance between 2019 and 2024 where the National Development and Reform Commission (NDRC) has indicated intentions to cut steel production in its proposed plans. Previously, the emphasis was on industrial transformation, emission reduction, and industry consolidation.
The directive came as a surprise to industry analysts and traders, who interpreted it as a strong governmental signal to regulate steel production this year.
Chinese steelmakers have struggled with profitability due to a long-standing property downturn that has dampened domestic demand, alongside growing trade friction impacting steel export prospects.
China has faced backlash from numerous countries and regions, attributing harm to local manufacturers from the influx of inexpensive Chinese steel. In particular, Vietnam and South Korea, key export markets for China, imposed anti-dumping duties on certain Chinese steel products in February.
In alignment with its carbon emission reduction strategy, Beijing had previously mandated a halt to crude steel output expansion in 2021. As a result, steel production in the country in 2022 decreased by 5.6% to 1.005 billion tons, down from its 2020 peak of 1.065 billion tons, according to official statistics.
