In 2016, the effective capacity and total output of China's iron and steel industry rose double
Against the backdrop of the central and local governments' high-profile efforts to eliminate overcapacity in the steel industry, the reality is surprising. Today (February 13), relevant institutions released the report "Inquire about China's iron and steel overcapacity in 2016", which showed that the effective capacity of China's iron and steel industry rose instead of declining in 2016, with a net increase of 36.59 million tons.
In February 2016, the State Council issued the Opinions on Reducing Excess Capacity in the Iron and Steel Industry to Achieve Development through Poverty Relief, proposing to reduce the iron and steel production capacity by 100 million to 150 million tons in 3-5 years, which opened the prelude to the "capacity reduction" of China's iron and steel industry during the "13th Five Year Plan" period.
This industry research report shows that, according to the statistics on the target and completion of capacity reduction announced by all provinces and cities in 2016, in 2016, all provinces and cities in China reduced the crude steel production capacity by 84.9175 million tons, far exceeding the target of 45 million tons set by the central government. However, only 30% of the reduced capacity is the effective capacity under production, and the rest is the invalid capacity under long-term shutdown. In addition, due to the recovery of the market in 2016, more than 50% of the steel plants and equipment that had stopped production due to poor production conditions in the early stage were re invested or re produced after being acquired by other enterprises.
The reduction of effective production capacity was limited, and a large number of production capacity was stopped, resulting in a significant increase of effective production capacity in China's steel industry in 2016. In 2016, the actual crude steel output also increased by 1.2% compared with 2015, reaching 808.37 million tons. However, China's crude steel output decreased by 2.3% year-on-year in 2015, the first decline since 1981.
The report shows that in 2016, 26 provinces (excluding central enterprises) in China reduced the steelmaking capacity by 84.9175 million tons, including 61.545 million tons of ineffective steelmaking capacity, accounting for 72.48% of the total reduced steelmaking capacity. This means that in 2016, the iron and steel production capacity was largely eliminated as "invalid production capacity".
In an interview with Caixin, analysts said that the report defined the capacity that had actually stopped production before June 2016 as "invalid capacity". He explained that in the context of the central government's efforts to promote capacity reduction, the "capacity reduction" of iron and steel in various provinces and cities went into substantive capacity reduction after July 2016, and it was very rapid. The important reason behind this was that many provinces and cities exchanged "invalid capacity" for policy subsidies. According to the report, for example, a large part of the capacity lost in Liaoning, Fujian, Guangdong and other provinces is the medium frequency furnace that has been strictly prohibited by the state. In addition, Zhejiang Hanggang has closed down in 2015, but was included in the capacity lost performance in 2016.
The increase in China's crude steel output in 2016 was due to the warming of steel market prices, which led to the resumption of production of a large number of steel mills.
China's steel industry has been in a downturn for a long time. China's steel composite price index (CSPI) has been declining for many years. It fell 5.86% and 16.19% year on year in 2013 and 2014, respectively, and fell 32.16% to 56.19 points year on year at the end of 2015; The average sales profit margin of the whole industry was negative, and more than half of the enterprises lost money. However, in March 2016, steel prices began to recover. By the end of 2016, CSPI had climbed to 99.51 points.
The price of steel has soared all the way. In the early stage, some steel mills that stopped production due to continuous production losses or capital chain breakage were re invested or re produced after being acquired by other enterprises, stimulated by profits. The report shows that according to incomplete statistics, from 2014 to 2015, 120 blast furnaces were shut down nationwide, with a total iron making capacity of 90.55 million tons. At present, 62 blast furnaces have been put back into production, i.e. 48.74 million tons of iron making capacity, accounting for 54% of the previously shut down iron making capacity, corresponding to about 54.15 million tons of steel making capacity. The provinces with the largest iron making capacity are Hebei and Shanxi, respectively 20 million tons and 14.7 million tons.
Another reason for the capacity increase in 2016 is the new capacity. This part of new capacity mainly includes replacing outdated capacity with new capacity, and new capacity after steel plant relocation. According to the statistics in the report, the newly added blast furnace iron making capacity reached 11.6 million tons in 2016, and after replacement, the newly added capacity was about 5.8 million tons. Among them, Baosteel Zhanjiang Project and Masteel are capacity replacement projects, and Qingdao Iron and Steel is relocation projects.
In 2016, there was a net increase in effective production capacity in 10 provinces, the largest of which were Shanxi and Hebei, which were adjacent to Beijing, with 14.7 million tons and 12 million tons respectively. In addition, there was a net increase of 1.65 million tons in Tianjin. These net increase in effective capacity undoubtedly exacerbated the smog in Beijing Tianjin Hebei region in the winter of 2016. Only six provinces have achieved net compression of effective capacity, with the largest reduction in Southwest China and Shandong.
Based on the above three aspects of data, since more than seven provinces reduced their crude steel production capacity in 2016, which became invalid, the effective crude steel production capacity was only 23.37 million tons, the recovery production was 54.16 million tons, and the new production capacity was 5.8 million tons after replacement. Therefore, the net effective production capacity was 36.59 million tons in 2016.
According to the statistics in the report, in 2017-2020, although there are 74.45 million tons of crude steel capacity and 14.18 million tons of crude steel capacity to be reduced in each province, city and central enterprises respectively, there are 20.9 million tons of effective capacity added after replacement in the same period. If the majority of the reduced capacity is still invalid, the reduction of effective capacity may be very limited.
From the perspective of environmental protection, in 2014, China's iron and steel industry emitted 18 trillion cubic meters of waste gas, accounting for 26% of the total industrial waste gas emissions of all industries. It is the second largest air pollution emission industry after the power and heating industry, and the process of air pollutant emission reduction of the iron and steel industry lags behind the power industry.
Analysts pointed out that the iron and steel overcapacity reduction policy should not only give the target of "quantity", but should combine the supply and demand situation of the industry, the average profit margin, environmental protection and other factors to formulate the policy target. For example, the goal of overcapacity reduction can be determined in combination with the 13th Five Year Plan of iron and steel, which can not only prevent the effect of "ineffective capacity", It can also prevent the supply and demand phase mismatch in the process of capacity reduction in similar coal industries in 2016. At the same time, government subsidies for capacity reduction should also be differentiated, and the outdated capacity that should be eliminated, the capacity that has stopped production and the capacity that is in production should be treated differently.