Efforts set to expand into other industrial sectors
China's efforts to cut excess capacity appear to have been "well implemented" given the market price changes, experts told the Global Times on Wednesday, and the capacity-cutting drive is set to continue in 2018.
The Chinese government has already exceeded the 2017 target for cutting excess industrial capacity, Shen Ying, a senior accountant with the State-owned Assets Supervision and Administration Commission (SASAC), said during a press conference held by the State Council Information Office on Wednesday.
Wu Chenhui, a Beijing-based analyst of steel and rare earths, told the Global Times on Wednesday that coal and steel are two areas in which the effects of capacity cutting have been most significant.
According to Shen, China has cut 5.95 million tons of excess steel capacity and 27.03 million tons of excess coal capacity, as well as halting or postponing the construction of up to 51 coal and electricity projects.
"The prices of steel and coal have been rising in 2017, showing that capacity cutting has not been just scratching the surface - it has changed the market demand and supply," Wu said.
Data from glinfo.com showed that the price of certain kinds of hot-rolled ribbed bars surged to about 5,000 yuan per ton around the middle of December 2017 compared with about 3,200 yuan around mid-January 2017. But the price has been declining since then.
According to Guan Dali, an energy analyst at First Futures, the price surge has led to outstanding business performance for steel and coal firms in 2017.
A report by sohu.com in November showed that domestic listed companies in the coal sector had total revenue of 647 billion yuan ($100.5 billion) in the first three quarters, up 54.69 percent on a yearly basis.
A report by cs.com.cn on Tuesday also showed that of the listed steel companies that had already disclosed their financial data for 2017, almost all had revealed rising business performance.
The government's efforts have lead to outstanding business performance by centrally administered State-owned companies. In 2017, the enterprises achieved total profit of 1.423 trillion yuan, up more than 15 percent on a yearly basis. Of the 98 enterprises, 41 made profits exceeding 10 billion yuan, Shen said, adding that traditional areas including coal, steel and oil saw a shift from loss to profit.
Replacing old with new
According to Guan, the government has focused its efforts on closing mines with old equipment or with nearly exhausted resources. He also said that the government is not only eliminating old capacity, but is also replacing it with new capacity.
"It's more like upgrading of capacity rather than just cutting capacity," he told the Global Times on Wednesday.
Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times on Wednesday that the government should adhere to this direction of replacing old capacity with new, rather than just closing down factories.
"The rise in prices of steel and coal has shown the changes in supply and demand, so further capacity cutting might cause a shortage of supply. But backward capacity should be eliminated anyway," he said.
Efforts to continue
Shen said the government's capacity-cutting efforts will continue in 2018. More than 10 million tons of excess coal capacity is expected to be cut, and coal sector consolidation will be encouraged.
She also said the task of capacity-cutting in the steel sector is almost complete, and the next step will be to upgrade the traditional steel industry with "modern technologies."
The capacity-cutting efforts are expected to expand into areas like shipbuilding and refining.
Wu said that in the nonferrous metal area, the capacity glut problem is obvious, but overall the situation is not as serious as with coal.
