Caixin
Mar 05, 2018 07:52 PM
POLITICS & LAW

China Targets More Cuts in Steel, Coal Capacity

The government is cutting steel production capacity as part of a nationwide campaign to close excess and inefficient industrial capacity that had dragged down prices and corporate profitability, while exacerbating the country’s pollution problems. Photo: VCG
The government is cutting steel production capacity as part of a nationwide campaign to close excess and inefficient industrial capacity that had dragged down prices and corporate profitability, while exacerbating the country’s pollution problems. Photo: VCG

China will continue to reduce overcapacity in steel and coal production this year, Premier Li Keqiang said in his annual report to the legislature on Monday, setting targets to take out 30 million metric tons of steel and 150 million metric tons of coal capacity.

The government will also close coal-fired power plants with capacity of less than 300,000 kilowatts that fail to meet necessary standards, Li said in his work report to the National People’s Congress. Companies in the steel industry will be encouraged to upgrade their plants to reduce pollution, he said.

The cuts are being made as part of a nationwide campaign announced in 2016 to shut excess and inefficient industrial capacity that had dragged down prices and corporate profitability, and exacerbated the country’s pollution problems. The authorities set a target of reducing steel capacity by 100 million to 150 million metric tons over five years, and coal capacity by 500 million metric tons within three to five years.

Government data show that 115 million metric tons of steel capacity and more than 400 million metric tons of coal capacity have been shuttered over the past two years. If the 2018 cuts announced by Li in the work report are realized, the country will have met the targets set out in 2016 two years ahead of schedule.

The campaign to shut excess capacity helped reverse more than four years of deflation in industrial prices. The producer price index, a measure of industrial inflation, turned positive in September 2016 and surged by 7.8% year-on-year in February 2017, the highest gain in more than nine years. The index has since moderated, but still rose 4.3% in January 2018.

Contact reporter Jason Tan (jasontan@caixin.com)

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