Steel smelting on the rise despite cuts in capacity in China

Crude steel production in China in the first three quarters of this year increased significantly compared to the corresponding period last year. Meanwhile, government officials said the centrally managed state-owned enterprises are on track to meet their 2016 annual capacity reduction target.

China's steel production was 68.17 million tonnes, up 3.9% from the same month last year, according to September production data released by the World Steel Association. Aggregate production during the initial nine months of this year was a slight increase of 0.4% for the year. The volume of steel production in the country in the period January-September 2016 amounted to 603.78 million tons.

It is estimated that China has cut steel production capacity of over 90 million tons over the past five years. In addition, in July this year, the country has already cut capacity by 13 million tons, which is almost 47% of the planned production cut for the whole year. The Chinese administration plans to cut steel production by an additional 100 million to 150 million tonnes by 2020.

The shrinking capacity is an incentive for large and modern steel producers in the country, resulting in consolidation in a highly fragmented industry. It can also lead to an increase in capacity utilization. The merger is expected to help streamline steel production in the country.

Steel prices have already shown improvement throughout the year on the back of demand from the infrastructure sector. Steel prices by mid-October were almost 30% higher than in early 2016.