Iron and steel industry "backward production capacity eliminated"

On May 4, the National Development and Reform Commission issued a document to recall the obsolete production capacity.

Among them, the iron and steel industry must complete the elimination of 300 cubic meters or less of blast furnace capacity and 20 tons or less of converter and electric furnace capacity by the end of 2010. By 2009, it is planned to eliminate 10 million tons of backward iron-making capacity and 6 million tons of steelmaking. By 2011, 72 million tons of outdated ironmaking capacity and 25 million tons of steelmaking capacity will be eliminated.

The Development and Reform Commission reiterated that eliminating backward production capacity. On May 5th, Shan Shanghua, the secretary-general of the China Iron and Steel Association (hereinafter referred to as "China Steel Association"), said that this was the NDRC's implementation of the industry revitalization plan. It also showed that the issue of overcapacity has caused problems. The industry and the government attach great importance.

On the same day, in an interview with this reporter, Jia Yinsong, an inspector of the Ministry of Industry and Information Technology of the Ministry of Industry and Information Technology, said that in the absence of the corresponding market demand, the Chinese steel industry is still expanding its production capacity, causing overcapacity to become the biggest problem faced by the steel industry. Eliminating outdated production capacity will help alleviate this problem." "At present, the Ministry of Industry and Information Technology continues to investigate the backward steel production capacity, and the specific elimination rules are still under development."

Shan Shanghua also said: "The China Iron and Steel Association is currently assisting the Ministry of Industry and Information Technology to carry out a thorough investigation of the backward steel production capacity of various provinces and cities." He bluntly said that there is no doubt that Hebei Province is the focus of the government to eliminate backward steel production capacity.

Hebei process

Wu Gangxi, president of the China National Steel Association, once said at an industry internal conference that the most serious case of China's steel production surplus is not iron-based but Hebei.

At present, Hebei Province has a steel production capacity of 137 million tons, accounting for 23% of the country. It is a veritable steel province, but the province's small and medium-sized steel companies have a 40% share of production capacity.

According to the "Implementation Opinions on Implementing the State's "Steel Industry Adjustment and Revitalization Plan" approved by the Hebei Provincial Government on April 24, the goal of eliminating outdated production capacity in Hebei Province is to eliminate 400 cubic meters or less of blast furnaces by the end of 2011. 30 Ton and below converters and electric furnaces will complete elimination of obsolete steel production capacity of 20 million tons in 3 years, and the total production capacity will be equivalent to 24% of the national total target.

On April 30th, the Hebei provincial government held a video teleconference on energy saving and emission reduction across the province. Wang Dayong, president of the Hebei Provincial Metallurgical Association, attended the conference. On May 5, Wang Dayong told this reporter: “The provincial government attaches great importance to the elimination of backward production capacity, and has issued indicators for various provinces and cities, and advanced ones will receive awards.”

According to Wang Dayong, the key areas for eliminating outdated production capacity in Hebei Province in 2009 were four key cities in Tangshan, Handan, Xingtai and Zhangjiakou. The main measures taken are three points. First, necessary disciplinary measures are taken in areas where the elimination task cannot be completed. Project bans or limited approvals are implemented in due course. Second, the energy conservation assessment review is considered as a mandatory entry threshold for new projects. We will vigorously promote the construction of key energy-saving and emission reduction projects and explore the elimination of long-lasting, outdated mechanisms.

On May 5th, Wan Xihe, president of the Iron and Steel Enterprises Association of Hebei Wu'an City, told reporters: “In 2008, we shut down 10 blast furnaces of about 200 cubic meters, and the government subsidized 2 million yuan for each blast furnace. Three converters were shut down, and each subsidized 2.4 million yuan."

The list provided by a person from the Industrial Economic Promotion Bureau of Tangshan City shows that as of the end of 2008, 17 companies, such as Hongshan Hot Rolling, Baotai Iron and Steel, Guofeng Steel, Qingquan Steel, Tangshan Iron & Steel Group, West China Steel and Hong Kong Steel, etc. The steel mills eliminated one to two 210 cubic meters of blast furnaces.

Dilemma choice

However, an insider of Hebei's medium-sized private steel enterprises told this reporter: “Now, our small and medium-sized steel enterprises make better profits than Dagang Steel. Together with the state’s economic measures to maintain growth, local governments also tend to protect local companies. Only mills that can't survive are shut down."

An insider of the China Iron and Steel Association also believes that at present, Hebei's small and medium-sized steel enterprises "live better than large companies." In his opinion, "People have profits and it is difficult to eliminate them."

For example, Hebei Province requires that “by 2011, the proportion of narrow strips should be reduced by 10%”. However, in the view of the China Steel Association, this "target is unlikely to be achieved." In fact, in 2008, due to the large market demand for narrow strips, “the national narrow strip has increased to 36 million tons, most of which are produced by Hebei small and medium steel companies.”

On the one hand, it is necessary to maintain growth. On the one hand, we must eliminate backward production capacity. For many local governments, this is a dilemma. “There are contradictions between these two tasks. Many local governments generally only care about the task of ensuring growth. Eliminating backwardness is only a matter of perfunctory,” said the person.

He said bluntly, “In fact, many of the blast furnaces that have already been eliminated are old blast furnaces that are eliminated by the company because of equipment upgrades and have little impact on the company's production capacity.”

The exit mechanism debate

Shan Shanghua said: "The exit mechanism is a difficult point, but it cannot be done. This year, the China Steel Association proposes to continue to implement measures such as differential electricity prices and water prices, and to use certain administrative means to guide backward production capacity to withdraw from the market."

Li Xinchuang, deputy dean of the China Metallurgical Industry Planning and Research Institute, told this reporter that “The difficulty and focus of eliminating backward production capacity is to establish and improve the exit mechanism. The new construction must be combined with the elimination, and for exiting market participants, Subsidy standards should be formed."

The Development and Reform Commission issued a document on May 4, saying that in 2009, it will continue to promote the reform of resource product prices and environmental protection charges, actively implement the differential pricing policy, and guide financial institutions to strictly limit loans to industries with high energy consumption and overcapacity, and will continue to Introduce regulations and policies to promote energy conservation and emission reduction."

However, according to Zeng Shaojin, executive vice president of the China Mining Association, elimination of outdated production capacity is mainly based on market mechanisms and supplemented by administrative measures.

“It is necessary for the government to impose measures, but I think that the current elimination standards are not accurate enough. It cannot be said that small enterprises are not good, and some small enterprises are more environmentally friendly than large companies, and they cannot adopt the “national advancement” when they are eliminated. The standards of many private enterprises are more advanced than state-owned enterprises. In general, it should be eliminated, not small."

Zeng Shaojin particularly emphasized that the government’s current two major tasks are “guaranteeing eight” and “guaranteeing nine” GDP (creating 9 million jobs). When eliminating backward production capacity, the importance of “guaranteeing nine” cannot be ignored. "It is very important to stabilize people's livelihood and ensure employment. After we eliminate backward production capacity, we must give employees certain subsidies and guide them to actively reemploy."