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China's capacity cuts biting deeper into coal than steel

China'splans to tackle excess capacity seems to have cut deeper in its coal sectorthan in steel, as recent data from the National Bureau of Statistics showedrecord highs in steel output but a 16.6% year-on-year decline in coalproduction in June.

Combinedproduction of steel products rose by 3.2% year over year to a record high of100.7 million tonnes in June, and by 1.1% to 559.9 million tonnes in the firsthalf, according to data released by the authorities July 15.

Theaverage daily output of crude steel reached 2.3 million tonnes in June,exceeding the previous record set in April. Total crude steel productionincreased 1.7% to 69.5 million tonnes in June but dropped 1.1% year over yearto 399.6 million tonnes in the first half.

Alongwith higher domestic production, steel exports and iron ore imports also rose.

Thecountry exported 10.9 million tonnes of steel products in June, taking thefirst half figure to 57.1 million tonnes, according to data from China Customs.

Importsof iron ore and concentrates reached 81.6 million in June and 493.7 milliontonnes for the first half, compared to 75.0 million tonnes and 452.9 milliontonnes postedrespectively a year ago.

Chinesesteel producers have been boosting supply in the first half to take advantageof a price rebound, China SecuritiesJournal reported July 18, citing industry sources. The report said thecurrent capacity cuts in the steel sector mostly affectedproduction facilities that were already suspended due to low efficiency.

"Thetotal capacity is declining, but it does not come from those operatingmills," a source was cited as saying.

At the sametime, local Chinese governments have been less clear in their plans for cuttingcapacity for steel than they have for coal.

So far, 25 provinces in Chinahave announced plans to cut coal capacity, which will in total reduce thecountry's annual coal capacity by 800 million tonnes over the next three to five years.

China'scoal output booked a 16.6% year-on-year decline in June to 277.5 million tonnesand a 9.7% fall to 1.63 billion tonnes in the first half.

Cokingcoal output was flat at 38.5 million tonnes in June while it dropped 4.4% to215.7 million tonnes in the six months ending June 30.

Butthe decline in domestic production also resulted in higher coal imports in thefirst half, when the country imported 108.0 million tonnes of coal, up 8.2%from a year ago.

Thecuts also affected investments in the mining business in the first half.Combined fixed-asset investments fell 19.7% year over year to 422.50 billionChinese yuan.

Amongthem, coal booked a 34.1% year-on-year decline in total fixed-asset investmentsto 111.00 billion yuan, while that of the nonferrous metals industry rose by6.3% to 66.90 billion yuan.

Thecombined output of 10 nonferrous metals dropped by 1.2% to 4.4 million tonnes in June, while it stayed flat at 25.1 million tonnes for the half,compared to a year ago.

As of July 15, US$1 wasequivalent to 6.69 Chinese yuan.