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China expected to continue steel supply-side reforms, says lobby

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China expected to continue steel supply-side reforms, says lobby

A Chinese steel lobby said the government's supply-side reforms will continue unabated while encouraging mergers and acquisitions activity to reduce domestic steel production capacity further. The organization also criticized U.S. President Donald Trump's steel and aluminum tariffs as "very bad" for the world economy and trade.

China Iron and Steel Association Deputy Secretary General Li Xinchuang told the Global Iron Ore & Steel Forecast Conference in Perth, Australia, on March 22 that cutting about 150 million tonnes of capacity over the last two years — a task in which he was personally involved — was "not easy" and provoked "anger" due to its impact on global markets.

Yet he remained unbowed on the decision, saying that while steel production capacity cuts were, and still are, difficult to implement, "now nobody, no company in China can have new capacity. It is very strictly controlled."

"Over the last two years, China has cut about 150 million tonnes of capacity. No other country can do that, and we've continued to cut another 30 million tonnes. Not an easy job, and I'm personally involved in the process," he said.

"It's not easy in China to have a policy to cut steel capacity, because some people are very angry with it as overcapacity is very important for the world economy, but the government took my — our — advice that we should cut capacity."

While the government has prompted local mills to use high-quality steel, "we still continue reform, giving new force" for China's steel industry to increase global competiveness, said Li, who is also the president of the China Metallurgical Industry Planning and Research Institute.

He said China's steel market had peaked at a "high level," so its steel production "cannot increase."

Li remarked that 2017 was special because the government eliminated low-quality facilities to hand the market over to the "good quality" companies.

S&P Global Market Intelligence senior commodity analyst Max Court said in an interview on the conference sidelines that typically, much of Chinese mills' material is pellets sourced from domestic concentrate, with "quite a lot" imported as blast furnace pellets at about 65% purity.

"When you have high coking coal prices, it becomes difficult to trade off really high Fe. You can't put too many pellets into a blast furnace all at once, as you just reduce the temperature of the hot metal," he said.

"That's why there's a limit on scrap in blast furnaces. You can't really get more than 17% to 20% maximum, because if it cools the temperature down too much, then the slag and hot metal becomes more viscous, and you could clog up your blast furnace."

China's Ministry of Industry and Information Technology recently said China produced a record volume of steel at 832 million tonnes, despite shutting down 115 million tonnes of steel capacity between 2016 and 2017, and closed 140 million tonnes of induction furnaces that use scrap metal to make steel.

Yet as an ANZ expert recently told Australia's explorers, China exports very little steel to the U.S., hence Trump's steel and aluminum tariffs would affect other countries more than China, Li said.

U.S. Department of Commerce figures show that the U.S. imported 34.6 million tonnes in 2017, a 15% increase from 30 million tonnes in 2016. That figure was more than 15% more than the world's second-largest importer, Germany, but 14% less than the near-record high of 40.3 million tonnes in 2014.

Although China increased its share of steel exports by 0.3 percentage points, its exports to the U.S. dropped 4.6%.

Li said the U.S. putting up trade barriers was "very bad for the world economy and world trade. Why? The steel industry is already very internationalized as it's processed and traded globally, nearly half of world steel goes through the international market."

"I don't think the U.S. can win the trade issue globally," he added.