“Implementing strict controls on crude steel production is challenging. Many enterprises are already built, and it’s difficult to phase them out, especially since steel companies are often economic pillars of their regions. Hence, it’s tough for local governments to actively eliminate these enterprises. I believe current crude steel production controls won't have the same rapid and impactful results as the 2015 supply-side reforms,” said Li Lizhang, Vice President of the Steel Association and Chairman of Fujian Sangang, during an interview on July 30.
Li noted that Fujian Province has had one of the highest crude steel growth rates in the country, leading to significant control pressure. The provincial government has set targets to reduce steel output, which are now being implemented. However, there are issues with the policy, such as relying on past production data to set targets, which doesn’t fully account for some companies’ output being excluded or underreported.
Li acknowledged that administrative measures can help reduce capacity but cannot fundamentally change the situation. He suggested starting with stricter enforcement against illegal activities like unregistered sales, which can help gradually establish fair competition. He emphasized that short-term effects are unlikely and that self-discipline and administrative measures alone won't quickly resolve the issue.
Regarding industry self-discipline, Li pointed out that steel companies prioritize survival and will continue operating as long as they have positive cash flow. If cash flow turns negative, some companies may fail, eventually achieving supply-demand balance. This is when normal production and market stability might be restored.
Looking ahead to the second half of the year, Li expressed pessimism, noting that the steel industry’s performance is closely tied to the macroeconomic situation. With limited macroeconomic improvements expected and ongoing internal competition among steel companies, the situation remains challenging. He suggested that relevant government departments should address illegal capacities and consider implementing a blacklist system for non-compliant enterprises. Output control indicators should be based on legal capacities, with excess capacities reduced first.
