China lax on overcapacity controls into 2019. China’s Ministry of Industry and Information Technology recently warned that the steel sector is facing illegal capacity from new unapproved mills and from those that were expected to be shut down in capacity swaps.
A trend of growth in crude steel production.In the first eight months of 2019, China increased its production by 9.1pc to achieve 665mn mt. China’s crude steel production for August 2019 was 87.3mn mt, up 9.3pc compared to August 2018. The growing production trend continues from the previous year when China produced 928mn mt in 2018, up 6.6 percent from 2017. August represented a 5pc higher volume than the eight-month average. In annualized terms, without an expected monthly growth rate per remaining month, China’s forecasted crude steel production for 2019 is 997mn mt, up 7pc from 2018. With the reasonable anticipated growth, production surpasses the 1bn mt threshold.
Private sector growth adding supply side pressure in China. In its stated effort to curb excess capacity and pollution, Beijing moved on a consolidation strategy to have the country’s top 10 steelmakers own 60pc of the capacity by 2020. According to the China Iron and Steel Association (CISA), members, mostly state-owned firms, grew production at 5.9pc while non-members surged to 19.4pc, both y-o-y. While China did eliminate 140mn mt of steel capacity at 700 small mills and 150mn mt at larger mills in the past four years, illegal and unmonitored capacity could set back the supply-side and environmental reform efforts. The additional capacity is already resulting in growing competition at all levels including high-end products.