China admits overcapacity in steel not declining

The Dollar Business Bureau

The world’s biggest steel producer, China, has made a promise to cut capacity as the country is facing calls for trade penalties to block exports from steel producers around the world.

The Government of China on Monday said that vast overcapacity in China's swollen steel industry is still not falling, but protectionism measures are not the solution for the hurdles that the global steel industry is facing.

However, some experts feel that there are no fundamental changes in the underlying conditions of the market and there is no progress in overcapacity, while the prices have been showing improvement since the end of the 2015.

Last week, EU members took advice from France and Germany on tightening up the trade defences to protect the union's firms against the flooding of cheap imports, including the recent surge of steel products from China.

The country’s steel production declined in April compared to March, but average production per day actually increased to 2.314 million tonnes from 2.279 million tonnes.

The government of China has rejected the proposal that “the rise in production of steel in the months of March and April was mainly due to the so-called ‘zombie’ companies that are returning to the marketplace in order to gain from the high prices.”

China’s National Development and Reform Commission (NDRC) feels that the enterprises stopping and restarting production is generally a reaction to market changes but adjusting production is normal behaviour.

In the steel-producing city of Tangshan in Hebei, several mills have been out of operation due to a weak market in 2013, but they still don’t consider themselves as bankrupt.

Some trade experts believe that cutting steel capacity is significant but controlling steel output is more important.