Since the beginning of this year, under the push of the national decision-making level, the volume of capacity-removing tasks for steel and coal industries across the country has increased substantially. According to the data of the Ministry of Industry and Information Technology, the capacity-removing work is being carried out in an orderly manner. In the first three quarters, the steel industry has completed more than 80% of the annual production capacity reduction tasks, and the steel market price has risen by more than 30% from the previous year, and the industry has achieved profitability.
Analysts believe that capacity reduction is a major task of the structural reforms in 2016, and the steel industry will bear the brunt. At present, China’s economy is shifting from high-speed growth to medium- and high-speed growth, and the “three-phase superposition” effect has increased. There is an urgent need to accelerate the structural reforms on the supply side and to lay the foundation for the supply and demand transmission and add momentum. Resolving excess capacity is a pragmatic option in this context.
Li Bing, director of the State Assets Supervision and Administration Commission of the State-owned Assets Supervision and Administration Commission of the State Council, said at the Third Multi-industry Development Conference for the Iron and Steel Industry that the central government’s task to resolve excess steel production capacity this year was 7.19 million tons, which is expected to be completed in October. Among them, Baosteel Group Co., Ltd. has already completed this year’s steel capacity reduction task ahead of schedule. Wuhan Iron & Steel (Group) Co., Ltd. not only completed its tasks, but also exceeded its mission. Anshan Iron and Steel Group Co., Ltd. can also complete its tasks on time.
The essence of supply-side structural reform lies in the “reduction in quantity and quality.” Without a significant decline in demand, the withdrawal of production capacity and the contraction of supply will significantly improve profitability expectations and actual profits of companies in a favorable position. Its investment value is also significant.