Chinese New Year sees no-monkeying-around stance on steel overcapacity

As China takes off for the new Year of the Monkey, the mood for many in its steel industry will decidedly be sombre, judging from the recent slew of warnings several steelmakers have issued, predicting massive losses for 2015.

Over the week-long break, the industry will take time to digest the bitter medicine that the State Council has said would follow, after its announcement yesterday of guidelines to not just eliminate 100-150 million mt of capacity over the next five years, but to manage the resulting fallout from unemployment.

Skeptics may dismiss the news as a familiar refrain they've heard one too many times with limited outcomes, but many signs point towards a resolve by the state that is unwavering.

For one, the latest pledges to tackle the problem have been reiterated by the highest levels of the Xi-Li administration – the president and premier themselves – unlike earlier pronouncements, which were issued mainly by ministerial-level organs.

Furthermore, there is now recognition that excess capacity can't just be wished away without a plan to address the ill-effects of massive job losses. Plans to provide resettlement, retraining and financial compensation to displaced workers and to support companies and local governments that are willing to bite the bullet seem to be a step in the right direction.

In its statement, the government was forthcoming in noting that staggering losses by steelmakers over an extended period have forced the sanguine look into the mirror at the underlying problems of rapid over-investment in the sector.

Out of the country's ten biggest steelmakers by output that are listed and have issued earnings forecasts, only three expect to turn a profit, while six have flagged staggering losses running into the billions of yuan.