CHINA will achieve this year’s capacity reduction target ahead of schedule but a surplus of steel and coal supplies is expected to linger by 2020, National Development and Reform Commission said yesterday.
China will complete this year’s capacity reduction goal in the steel industry by the end of October, and meet the target for the coal sector by November, the NDRC said in a media briefing yesterday.
The NDRC estimates the demand for coal at 4.1 billion tons by 2020, with the supply set to be higher at 4.6 billion tons.
Cutting overcapacity ranks high on the government’s reform agenda in a bid to boost the country’s economic performance.
China’s annual crude steel surplus is estimated at around 300 million tons, three times the annual output of Japan, the world’s second-biggest producer. China has shut down steel plants with total capacity of above 90 million tons over the past five years and plans to reduce output by an extra 100-150 million tons by 2020.
“The government is leading the industry toward a gradual capacity reduction,” said Hu Kai, senior vice president who focuses on the state-owned enterprises at Moody’s.
“The pressure of defaults in overcapacity industries is eased as steel and coal companies posted better profit growth in the third quarter.”
But Hu said the fight to cut excess capacity needs a stable policy for at least two years to curb volatile prices in the commodities market.