China makes better-than-expected progress in overcapacity cuts

A worker at a steel company in Lianyungang, East China's Jiangsu province, in Jan 2015.[Photo/China Daily]

BEIJING - China has made better-than-expected progress in cutting overcapacity in the steel and coal sectors amid steadfast government efforts to push economic restructuring.

In Hebei province, where the task in cutting overcapacity is tough, 15.72 million tons of steel production capacity and 14.08 million tons of iron were cut in the first half of this year, progressing faster than the same period last year, according to local authorities.

China's steel industry has long been plagued by overcapacity. The government aims to slash steel production capacity by around 50 million tons this year.

Nationwide, 85 percent of the target for excess steel capacity had been met by the end of May, through phasing out substandard steel bars and zombie companies, with Guangdong, Sichuan and Yunnan provinces already meeting the annual target, data from the National Development and Reform Commission (NDRC) showed.

About 128 million tons of backward coal production capacity was forced out of the market by the end of July, reaching 85 percent of the annual target, with seven provincial-level regions exceeding the annual target.

As a large number of zombie companies withdrew from the market, companies in the steel and coal sectors have improved their business performance and market expectations.

Lifted by improved demand and lower supply due to government policies to cut steel overcapacity and enhance environmental protection, steel prices continued to pick up, with the domestic steel price index gaining 7.9 points from July to 112.77 in August, and increasing 37.51 points from a year earlier, according to China Iron and Steel Association (CISA).

"It is unprecedented, showing that overcapacity cuts have prompted the healthy and sustainable development of the sector and improved business conditions of steel companies," said Jin Wei, head of CISA.

Companies in the coal sector also gained profits. In the first half, the country's large coal companies registered total profits of 147.48 billion yuan ($22.4 billion), 140.31 billion yuan more than the same period last year, according to the NDRC.