April 24, 2017 / 9:05 AM / 3 months ago

China clamps down on excess steel as Japan decries Trump 'protectionism'

4 Min Read

An employee walks past columns of steel as she works at a steel production factory in Wuhan, Hubei province, August 2, 2012.Stringer/File Photo

MANILA/BEIJING (Reuters) - Twenty-nine Chinese steel firms have had their licenses revoked as Beijing kept up its campaign to tackle overcapacity in the sector and days after U.S. President Donald Trump said he would open a probe into cheap steel exports from China and elsewhere.

Analysts say the revocations were unlikely to be a direct response to Trump's plan, but rather a part of China's reform measures aimed at reducing surplus steel capacity that many estimate at around 300 million tonnes, about three times Japan's annual output.

The official China Daily said Washington's move to investigate steel imports could trigger a trade dispute between the United States and its trading partners. In Japan, the world's second-biggest steel producer after China, the head of its steelmakers' group expressed concern over Trump's protectionist policy.

"We are greatly concerned over Trump's protectionism, although we hear he has softened his tone on some issues with a grasp of reality," Japan Iron and Steel Federation chairman Kosei Shindo told a news conference on Monday.

China's Ministry of Industry and Information Technology released a list on Monday of 29 firms that will be removed from its official register of steel enterprises. Most have already stopped producing steel, but some had illegally expanded production or violated state closure orders.

"It's all enveloped in this strategy to improve the financial condition of the industry which has been weighed down by excess capacity for some time, partly as a result of inefficient operations," said Daniel Hynes, commodity strategist at ANZ.

China is aiming to shed between 100 million to 150 million tonnes of excess capacity over the 2016-2020 period. It also plans to shut around 100 million tonnes of low-grade steel production by the end of June.

On Monday, another 40 steel firms have been asked to make changes in areas such as environmental protection and safety.

The majority of the companies were accused of failing to comply with emergency output restrictions during heavy pollution periods, and they must fully "rectify" their violations within a prescribed period, the industry ministry said, without giving a specific time frame.

Hynes said China may take a more gradual approach in shutting inefficient mills rather than force "a lot of closures at once" and cause a spike in steel prices, which is what happened in the third quarter last year.

China set up an official steel firm register in 2009 to impose order on the poorly regulated industry and to help companies during price negotiations with iron ore suppliers overseas.

The register was also supposed to identify the mergers and closures required to meet a target to put 60 percent of China's steel capacity in the hands of its 10 biggest producers by the end of 2015.

However, industry consolidation rates actually fell to 34.2 percent over the 2011-2015 period, from 48.6 percent in the previous five-year period, and China has now pushed back the 60 percent target until 2025.

According to figures published by the official China Metallurgical News earlier this month, 292 out of a total of 635 firms in 12 provinces and cities have already ceased production or shut down completely.

Reporting by Manolo Serapio Jr in Manila and Beijing Monitoring Desk; Editing by Tom Hogue and Christian Schmollinger

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