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China announces steel, coal capacity reduction targets in line with expectations

China will seek to reduce coal and steel capacities by 150 million tonnes and 30 million tonnes, respectively, this year, according an annual work report Premier Li Keqiang presented at the opening of the National People's Congress on March 5.

The government would tighten regulations on the environment, quality control and safety in a bid to advance the capacity reduction program, Li said.

The comments were in line with analysts' expectations that the country would set the target at between 25 million and 30 million tonnes for steel and capacity reduction would take a back seat while environment and safety would fall under the regulatory spotlight.

The premier added that the government would focus on improving energy efficiency and managing pollutant discharge.

The capacity reduction program for steel is expected to be completed this year. However, a coal analyst, who asked not to be named, warned that the program may face more resistance among coal producers this year than it did in the past two years.

"Most of coal mines in China are making profits under the current price level, except for a few small-sized projects," the analyst said. "Coal miners are becoming less willing to reduce capacity, as the prices have been moving higher."

Chinese companies are also cautious about participating in a production quota swap program led by the government, due to uncertainties over prices, which may also slow down capacity reduction efforts, according to the analyst.

The analyst also expects domestic supply to tighten in the third quarter as the authorities move to realize the 150-million-tonne goal.

The phrase "supply-side structural reform" was mentioned eight times in Li's two-hour speech that reviewed the government's accomplishments in 2017 and looked ahead for policy-setting plans this year.

While Li stressed that supply-side reform would remain at the center of the country's reform agenda and regulators will continue to shut down inefficient capacity, he did not mention how it would play out for other mineral segments.

With the GDP growth targeted at 6.5% this year, which is slightly lower than the economy's growth of 6.9% in 2017, Li said the country is attaching more importance to high-quality growth after the rapid developments of past years.