Tackling Overcapacity in Steel Industry
    2013-11-21 19:26:01     CRIENGLISH.com         Web Editor: Mao

Tackling China's problems with industrial overcapacity, especially in the iron and steel industries will likely become a priority for the new Chinese leadership, which unveiled part of its first policy and reform blueprint this week. Li Dong has the details.


Tangshan, which is located just 200 kilometers from Beijing, gained notoriety this year after earning a place on a list of the top 10 most polluted Chinese cities for nine consecutive months.

The dishonorable title has upset the municipal government, and the city is now determined to control the pollution and transform its industrial structure, which has relied heavily on steel, cement and coke production in the past decades.

Iron and steel overcapacity is the main cause of the heavy pollution in Tangshan, and the city is just one of the many nationwide whose economy relies on high discharge enterprises.

Unordered production and competition is not only bringing severe pollution problems, but also harming the industry itself. However, many factories are still in production, leaving massive inventories deposited in open sites for one to two years.
A steel business dealer is really frustrated. His company is struggling to survive.

"The whole steel business has really hit rock-bottom. I have no idea how much longer I can hold on. The inventory is dealt at a price even lower than its cost price, otherwise, they are just piles of rubbish."

Hu Xuefa, general manager assistant of Shanghai Bao Steel Group explains the reasons behind the overcapacity of the entire industry.

"Steel and iron industry heavily rely on its assets, which means the fixed cost of the industry is very high. Once the steel factories stop production, the more money they lose. The price of iron and steel products is already very low. But as long as there is still a little net profit, they will keep the factory running. It takes time for the whole industry to step back to the track. Who can survive really depends on how much cash they have to back them up."

The profit from a tonne of steel was worth the price of a cell phone several years ago, but official statistics shows it dropped to just 0.43 yuan in the first half of this year due to serious overcapacity and sluggish demand.

China's State Council, the country's cabinet, is tackling the production overcapacity problem. Li Xinchuan, vice secretary general of the China Iron and Steel Association says, the industry should seize the opportunity and build a long-term healthy development mechanism.

"The State Council has just issued a new guidance on resolving overcapacity. The goal is to build a market oriented competition mechanism and environment. Besides, the transition and elimination process should follow certain orderly procedure and make sure the laid-off workers and debt problems are properly dealt with. It is time for the industry to build a long-term mechanism and maintain a healthy development mode, which is to balance profit-making with environmental protection."

China's top economic planners estimate that China produces about 20% more steel output than it needs. As a result, the central government has halted approvals of new production capacity unless it replaces less efficient capacity or leads to higher-value steel products.

For CRI, I am Li Dong.



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