28 March 2016

The measures taken by the PRC government will not yield the desired results

Terans Ko, director of consulting at Hatch Associates, Hong Kong, reviewed the situation in China. It is about reducing the excess steel production in the country. It is unlikely that the measures taken by the PRC government will produce the planned results. They are conducted against the background of an outstripping decline in domestic demand. His opinion Terans Co expressed at a conference Platts Steel Markets North America. It is likely that by the beginning of 2020 the apparent consumption of steel in the PRC will drop to about 500 million tons. At the same time, in 2015 the volume of production was 710 million tons. In 2014, a peak result of 740 million tons was observed.

According to the expert, excess steel production in the PRC was observed already in the early 2000s. In that period, the PRC got the opportunity to host the 2008 Olympics in Beijing. It was at that time in China that an unprecedented program was developed. It dealt with infrastructure and industrial construction. In accordance with it, the production capacities of the metallurgical sector were also expanded. Already in the middle of the past decade, the production of Chinese steel increased annually by 15%. After the end of the Olympics, a large part of the capacities turned out to be unnecessary. However, in 2008 there was a crisis, so it was necessary to stimulate the economic development of the PRC. To this end, launched an investment program, the volume of which amounted to 4 trillion. Yuan. At that time at the rate the amount reached 586 billion USD. These funds were mainly invested in the construction of facilities.

At the end of 2015, discussions began about the need to close steel mills. Their total productivity should be about 150 million tons per year for 5 years. In 2016, in order to avoid deplorable social consequences, a state fund was developed. Its assets are planned at 100 billion yuan. To date, at the rate of the amount will be 15.4 billion USD. The closure will mainly affect private production. Their capacity reaches 2-3 million tons / year. At the same time, steel consumption in the country will continue to decline. Its role in the matter will be reduced investment in the construction and industrial sector. Also, the insufficient pace of development of China's economy is also having a negative impact. As a result, in 2020, the excess capacity of the metallurgical sector will not budge. They will be 400 million tons per year.

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