The Chinese government is encouraging
steel companies to sign long-term contracts with coal and downstream steel
consuming companies while improving their product quality.
The measure, set out in a document issued
by five ministry-level bodies, is aimed at stabilizing recently fast growing
steel prices and further cutting the industry''s overcapacity.
The document, jointly released by National
Development and Reform Commission and other four ministries, said that although
progress had already been made to cut overcapacity in the steel industry in
recent months, the elimination of outdated capacity remains a major
challenge.
Despite the rapid rise of spot and future
prices for steel in the short term and the recent recovery in output and sales
performance of steel companies, companies should carry out further efforts to
reduce capacity to support economic growth, as the country''s oversupplied steel
sector has experienced years of plunging prices and factory shutdowns due to a
sluggish economy, it said.
Analysts said despite the surge in steel
price since the beginning of this year, the supply-demand situation has not
changed and the government document aims to stabilize the market and prevent
steel price from overheating and disproportionately rising.
According to Wang Guoqing, director of the
Lange Steel Information Center, despite the surging steel prices, steel
inventories remain high.
Figures from the center released that the
total inventory of steel in 29 major cities in China exceeded 12.39 million
metric tons as of Feb. 10, a 35 percent increase compared with three weeks ago,
surpassing the peak of 2016.
The construction steel saw the biggest
growth, more than 8.31 million tons as of Feb. 10, 50.8 percent higher than
three weeks ago, it said.
The government needs to ensure that
cutting overcapacity proceeds as planned, he said.
According to Huatai Futures, considering
the current stable increase in steel output and off-season demand, the inventory
for steel in 2017 is believed to exceed 18 million tons, the highest of the past
three years.
China''s crude steel output rose slightly
last year, with crude steel production increased 1.2 percent year on year to
808.37 million tons in 2016, compared with a 2.3 percent decrease in 2015,
according to the National Development and Reform Commission
China plans to reduce steel output by an
additional 100 million tons to 150 million tons by 2020. Its 2016 target to cut
45 million tons was achieved ahead of schedule.
China will enact stricter rules for
trimming steel overcapacity in 2017 after making significant progress in 2016,
according to experts.
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