Chinese steel overcapacity, the state of play

364 million tonnes, that's the number that describes China's steel overcapacity today according to the German Steel Association.

The Chinese government has intensified its efforts to reduce the gap between steel demand and offer. However, in 2016 the major part of capacity reduction was on installations that were idle or decommissioned. Estimates by S&P Global Platts quoted by Reuters say that capacity cuts were as high as 80 million tonnes.  

That's why Chinese steel exports have hardly declined in the past year despite the international pressure (109 vs. 111 million tonnes). The German Steel Association predicts that the excess capacity in China will still remain significantly above the 300 million tonnes mark in 2020.


Supply and demand development in China (mt)

- marked in blue, the raw steel capacity
- in green, the market supply
- red: the excess capacity

Sources: German Steel Association WV Stahl, OECD, State Council, 13th Five-Year Plan


An interesting analysis comes from Mr Etienne Davignon, former European Commissioner for Industrial Affairs and Energy, who said that the Chinese steel industry is facing challenges very similar to those faced by the European steel industry in the 70’s and 80’s. Though today's Chinese government policy is correct, to be successful it needs clear instruments and control systems (e.g. minimum prices, production quotas) and deeper reductions should be targeted.

On December 2016 a new Global Forum on Steel Excess Capacity was created, comprising the G20 economies, as well as other members of the Organisation for Economic Cooperation and Development (OECD). The Forum will report annually to the G20 ministers within its three-year, renewable mandate.

In the meanwhile, in these days the US industrial metals supply chain welcomes Donald Trump's inauguration, urging the new administration to take immediate action to restore growth and protect American jobs and American industry. "Protectionism is the wrong answer to the challenges of the global steel industry," said Hans Jürgen Kerkhoff, President of the German Steel Association. Germany's foreign trade is intensively intertwined with the United States. Around a quarter of German steel exports outside the EU (700,000 metric tons) are sent to the US.


Picture above on the right, sources: Stahl-Zentrum, ThyssenKrupp Steel



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