Date
30 March 2017
Closing down excess steel capacity is difficult when China has not figured out how to create enough new jobs. Photo: internet
Closing down excess steel capacity is difficult when China has not figured out how to create enough new jobs. Photo: internet

Why cutting steel capacity is suicide for China

China’s steel is famous for just one thing — excess supply.

Top officials have been promising to cut capacity ad nauseam but progress has been slow.

The simple reason is many steel mills are state-run and cutting production means cutting jobs.

Job losses in turn would harm social stability, so these are viewed as a political liability.

After a brief rebound in April, steel prices have been falling.

Some steel products have plunged as much as 30 percent from their April high, according to China Securities Journal.

With another massive increase in infrastructure spending looking unlikely, coupled with the fact that the country is already grappling with a housing glut, the outlook for the building material is grim.

It is estimated that steel firms are at best breaking even at current prices and some might have already slipped into the red.

A recovery in the steel business is nowhere in sight.

Historically, whenever there is some pickup in prices, factories rush to produce more, quickly pushing down prices again.

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RA

EJ Insight writer

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