Date
17 October 2017
China will encourage consolidation moves in the steel industry in a bid to alleviate overcapacity problems. Photo: Reuters
China will encourage consolidation moves in the steel industry in a bid to alleviate overcapacity problems. Photo: Reuters

China to push steel sector consolidation under new plan

The 13th Five-Year Plan for China’s steel industry is scheduled for release by year-end.

It may focus on a push for consolidation, paring overcapacity, environmental protection, improving the product mix and overseas moves to build integrated mills.

The plan’s targets and forecasts will be critical as market participants seek direction amid the industry’s shrinking margins.

China’s 10 largest steelmakers may see their market share increase in the next five-year plan, as the government pushes for industry consolidation in a bid to alleviate overcapacity.

The sector hasn’t achieved the consolidation targets in its 12th five-year plan because large-scale mills haven’t shut plants following acquisitions.

The market share of the country’s 10 largest producers fell to 37 percent last year from 49 percent in 2010. Smaller companies have continued to grow rapidly, prolonging margin-sapping price wars and fueling environmental concerns.

Steelmakers may need to continue to invest in their production lines to meet potentially stricter environmental protection requirements in the 13th plan.

Small-scale mills could be driven out of the market due to the need to invest in expensive equipment upgrades to comply with those requirements — improvements that larger mills have mostly made.

Capacity control is likely to be achieved if old, unprofitable mills are closed and strict approvals are required for new, well-planned ones.

The government may encourage mills to go overseas to source iron ore, build integrated steel mills nearby, and extend value chains to deep-processed high-value-added products.

The views expressed in this article are those of Yi Zhu, an analyst at Bloomberg Intelligence.  

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CG



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