The Ministry of Industry and Information Technology plans to reinforce the excess capacity of steel

After a large-scale investment in the past few years, the oversupply situation in the iron ore market has been established. At the 2013 Iron Ore International Market Symposium, officials from the Ministry of Industry and Information Technology said that the Ministry of Industry and Information Technology will adopt measures such as increasing market access standards to resolve excess capacity. Many business people also believe that production will be arranged according to actual market demand. Most people in the industry believe that iron ore prices may continue to fall due to the impact of future steel investment or a round of downturn.

Six measures to resolve excess capacity

Regarding the problems faced by the steel industry, Zhang Dejun, director of the raw materials department of the Ministry of Industry and Information Technology, said that the property of the steel industry has determined that it has become an area for investment in various places. The steel industry is a typical capital- and personnel-intensive industry with strong correlation, employment, and tax revenue. It has contributed a lot to local economic development, fiscal revenue, and employment. Therefore, although the state has always exercised control over the total amount, many places still support the development of the steel industry by giving financial subsidies, tax reductions and other policies.

Zhang Dejun said that this year the Ministry of Industry and Information Technology will adopt six measures to resolve the excess capacity of the steel industry.

First, we will deepen the reform of the mechanism and make better use of the leading role of local governments. Continue to put the overcapacity into the local government assessment target, and through the transfer of financial subsidies, local governments will eliminate the backward production capacity of the steel industry. It is reported that Shandong, Hebei, Yunnan, Jiangsu and other places will likely become the focus of remediation.

Secondly, this year will strictly control the newly added production capacity. On the basis of total control, it will rely fully on the strict enforcement of land and environmental protection departments to curb the launch of redundant construction projects.

Third, while giving full play to the market allocation mechanism, improve the market access standards for environmental quality, technology, resources and energy consumption. For enterprises that do not meet the entry criteria, they will be curbed by means of differential electricity prices and taxes.

Fourth, we will continue to vigorously promote mergers and acquisitions, eliminate backward production capacity, and encourage enterprises to conduct mergers and reorganizations across industries, regions, and ownership.

In addition, the Ministry of Industry and Information Technology will support technological transformation and digest a batch of production capacity this year; encourage competent enterprises to accelerate “going out” and transfer a batch of excess capacity.

Steel production is still in a downturn cycle

In the view of most industry insiders, the trend of oversupply of steel demand has been formally established. Wang Xiaoqi, vice president of China Iron and Steel Association, said that due to the relatively high rate of return on mining, various types of capital were invested in the steel industry in the past few years, resulting in a large increase in iron ore production capacity. As these production capacity will be released in the next few years, the future iron ore market will continue to show a situation of oversupply.

For the market situation in 2013, Wang Xiaoqi believes that the external environment of the steel industry this year is slightly better than in previous years. Among them, the market demand is generally equal to or slightly increased from the previous year. The demand for long products is higher than that for plates, and the special materials are better than general materials. The market demand in the first half of the year is slightly better than the second half.

From the perspective of the enterprise, after experiencing the freezing point of the market, the investment enthusiasm may gradually retreat. If the situation of oversupply continues, it will increase the pressure on enterprises. Wang Jianping, manager of the mineral sands department of China Minerals Co., Ltd., said: "This year we will be guided by the actual needs of the market and rationally arrange investment and production."

The industry believes that based on the judgment of the market oversupply situation, the future steel investment and production growth rate may decline, the steel industry will usher in a downturn cycle.

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