China will limit its annual steel production capacity to no more than 400 million tonnes during its eleventh five-year plan which comes into effect this year, the National Development and Reform Commission (NDRC) has confirmed in a statement reported in the Shanghai Daily newspaper.
In a drive to curb surging investment and excess supply of steel, the country plans to phase out 100 million tonnes of iron production capacity and 55 million tonnes of steelmaking capacity by 2010, according to the top economic planning body. Last year, China’s steel output capacity jumped 35% to 419 million tonnes, while a further 119 million tonnes are either planned or are already under construction.
China endured roller-coaster steel prices in 2005: after hitting a decade-high in April, price levels fell back thanks to over-capacity and inventory growth led by soaring investments and imports. Prices plummeted in late September, with widely-used hot-rolled steel sheets dropping to only 50% of their March 2005 levels.
The Chinese government has been trying to curb expansion in the industry after steel output doubled over the space of four years. In July 2005, the central government adopted a policy which encourages industry mergers and establishes a target of having the top 10 domestic mills account for more than 50% of the country’s total output by 2010, rising to 70% by 2020. ‘Steel demand in the country will grow at a limited pace (in 2006) as government measures are set to take effect,’ said Wu Xichun, former Chairman of the China Iron and Steel Association.
