China’s government vows attention to steel overcapacity

China’s government says it will begin to take measures to rein in its steel output, which in the first two months of 2019 grew by 9 percent compared to the first two months of 2018.

On online news article from Xinhua, which is considered a government-controlled news organization, says China’s Ministry of Industry and Information Technology (MIIT) will conduct random inspections in regions that it considers “prone to illegal steel production activities.”

The Xinhua report further states that “methods such as satellite remote sensing and electricity use monitoring will be used to check unwanted steel production,” citing comments from a MIIT inspector.

Maintaining profitability among steelmakers is cited by Xinhua as a primary motive. Many steelmakers are state-owned enterprises (SOEs), whose interests are commonly protected by central government ministries.

China’s steel output in the first two months of 2019 checked in at more than 149.5 million metric tons, a 9.2 percent increase from the 137 million metric tons produced in the first two months of 2018. Those figures are provided by the China Iron and Steel Association (CISA) to the Brussels-based WorldSteel Association.

Pressure to keep China’s economy on a sufficient growth track may have contributed to an earlier government decision to de-emphasize pollution-related output cuts in the 2018-2019 winter compared to the previous winter. The lack of an environmental crackdown may have allowed producers to churn out steel at a higher level in early 2019 compared to January and February 2018.