China’s steel capacity grew in 2016 despite promises of cuts

China's steel capacity grew by more than double the UK's total capacity in 2016. [Les Chatfield/Flickr]

China increased its steelmaking capacity last year by more than twice Britain’s annual output, a report said on Monday (13 February), despite repeated pledges to cut huge excess in the sector.

China makes more than half the world’s steel but a slowdown in its economy and sagging global demand has left the industry with massive excess capacity.

It has been accused of dumping its production on world markets, depressing prices and violating international trade agreements.

Throughout 2016, authorities vowed to tackle excess production through consolidation and shutting idle or inefficient factories.

China convinces G20 nations with 'fair' communique

Arguably, the most remarkable progress made during the G20 summit held in Hangzhou (China) was not included in the conclusions. It was rather the change of attitude of the architect of the final text, China.

But while some steel capacity was cut, this was more than offset by China’s opening of new factories or restarting of idle plants, according to a report by steel consultancy Custeel and Greenpeace East Asia.

It said China’s operating steelmaking capacity increased by 36.5 million tonnes in 2016 – more than twice as much as the total production capacity of Britain.

Eighty percent of this increase occurred in three provinces bordering Beijing, causing air pollution to spike in the capital at the end of the year and early 2017, it added.

Steel chief: Brexit may help defend the EU from dumping

For every tonne of steel that we reduce from our production capacity, we find five imported tonnes at our border, Axel Eggert, the director general of the European Steel Association (EUROFER) told Euractiv Slovakia.

Steelmaking is the country’s second largest emitter of air pollution, the report said.

Nearly three-quarters of plants affected by China’s capacity cuts in 2016 were already idle.

Instead of shutting down firms, local officials manoeuvred to “shield zombie steel mills and minimise the impact of the policies” on cutting capacity, said Lauri Myllyvirta, Greenpeace global coal campaigner.

Despite an agreement for Beijing to address steel overcapacity reached at September’s G20 meeting in Hangzhou, China’s trade partners have accused it of dumping the metal on markets in violation of trade rules.

Earlier this month the US Department of Commerce imposed hefty tariffs on certain Chinese steel imports, with duties ranging from 63% to 190% on Chinese exporters accused of selling their products at below fair value or of being unfairly subsidised.

In January the European Union unveiled taxes of between 30.7% and 64.9% on certain Chinese steel products as it seeks to protect struggling steelmakers in Europe.

China must target cuts on operating steel factories and not on idle ones, the Custeel report said, noting that more than 20 million tonnes of new capacity is already due to come online.

Factories should be demolished and not sealed up to prevent their reopening in the future, it said.

Saving European steel

Policymakers are struggling to find the way forward to preserve a future for the European steel industry, once a bedrock of the bloc’s industrial economy, which is currently facing the most serious crisis in its history.

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