Fitch: China Will Difficult To Reach Target To Cut Steel And Coal Capacity

China's success in drastically reducing coal and steel production capacity last year was based on the choice of “low hanging fruit,” shutting down mines and factories that were already idle. However, it will be more difficult to meet the 2017 capacity reduction target. In addition, the Chinese coal and steel sector is likely to remain oversaturated in the medium term, limiting the upside potential for global prices, says Fitch Ratings.

The Chinese government has met its targets for capacity cuts in 2016, ditching 290 million tons of coal capacity and 65 million tons of steel capacity. These efforts, along with restoring Chinese property and investment in infrastructure, helped support the recovery in global coal and steel prices last year.

Fitch Ratings clarifies: “We expect Chinese steel production to remain stable in 2017, which means that exports will remain at around 100 million tonnes, given that consumption is also likely to remain unchanged. This will put downward pressure on world prices for steel products.