What is the Human Cost of Restructuring China’s Steel Industry?

S&P Global Platts
Written By: Sebastian Lewis
S&P Global Platts
Written By: Sebastian Lewis

This year China announced that it will cut up to 150 million mt/year of steel capacity by 2020 at an estimated cost of 500,000 jobs. While much attention was paid to the 150 million mt of capacity, little attention was given to what the number of people expected to be laid off says about staffing levels in the China’s steel industry.

According to WIND, a Chinese information provider, China employed 3.63 million people in the “ferrous metal smelting and rolling processing industry” at the end of 2015. By way of contrast, the world’s second largest steel maker Japan employed fewer than 20 times this number — 174,000 people, according to the Japan Iron and Steel Federation — despite producing only eight times less steel.

Indeed, how inefficient China’s steel industry looks in terms of people required to make a metric ton of steel can be seen in the table below which uses statistics from WIND, national steel associations and Worldsteel:

Crude steel production and persons employed in steel industry

Country Steel output 2015 (mil mt) Persons employed in steel industry (‘000) Persons per 1,000 mt crude steel produced
China 800 3,627 4.5
Brazil 33 110 3.3
EU 166 330 2.0
Japan 110 174 1.6
USA 87 142 1.6

Source: WIND, Brazil Steel Institute, Eurofer, JISF, AISI, Worldsteel

Although we cannot be certain that the data are classifying employment in the steel industry in the same way across the selected territories, the data appear to show that Japan and the USA are the most efficient steelmakers: requiring around 1.6 people to make 1000 tons of crude steel and less than half the 3.3 persons Brazil employs to produce the same amount of crude. It is China, however, that stands out as the most inefficient producer in terms of staffing, requiring three times as many people as Japan or the USA to make a ton of steel.

For anyone acquainted with China’s steel industry, this may not be very surprising. The industry is dominated by State Owned Enterprises (SOEs), which have a reputation for being over-staffed and inefficient. However, a closer look at the employment data of individual enterprises reveals significant differences within the Chinese steel industry as can be seen in the table below:

Selected Chinese steel companies: production and persons employed in steel industry

Steelmaker Steel output 2015 (mil mt) Persons employed in steel industry (‘000) Persons per 1,000 mt crude steel produced Type of enterprise
Ansteel 33 160 4.9 SOE
Baosteel Group 35 126 3.6 SOE
Wuhan I&S Group 26 82 3.2 SOE
Jianglong Group 15 40 2.6 Private
Shagang Group 34 37 1.1 Private
Rizhao Steel Group 14 12 0.9 Private

Source: Company websites, Chinese media reports, Worldsteel

This shows that there is a marked difference between the number of persons required to make 1000 tons steel by the SOE and private sector. Indeed, privately owned companies like Shagang and Rizhao compare very favorably in their level of staffing compared to the USA and Japan.

Ansteel controls a number of steel mills across China and also controls quite significant iron ore assets in Liaoning and Sichuan provinces. It is very likely that the staff employed in its own iron ore mines are included in the overall staffing levels, contributing the high number of people required to make 1000 tons of crude steel.

Earlier this year Wuhan Iron and Steel announced that it planned to cut around 50,000 jobs, which would result in a workforce of around 30,000 down from the current 82,000 employees. If it achieves this, and crude output stays at 2015 levels then Wuhan Group will only employ 1.2 persons per 1000 tons of steel, in line with levels of productivity at Shagang or Rizhao Iron and Steel.

If the whole of China’s steel industry were to follow Wuhan’s lead and cut staff to the same levels of productivity as the Japanese or US steel sector, then employment across the Chinese steel industry would fall from 3.6 million to just 1.3 million persons — a contraction of 64%, or 2.3 million people. That’s equivalent to around half the population of the Republic of Ireland. It’s a sobering thought and will likely be on policymakers’ minds as they consider restructuring the Chinese steel industry.