China still on long way to cut excess steel capacity

The task of cutting excessive steel capacity remains arduous as a short-lived price rally could result in steel mills upping production in pursuit of profits and exacerbate the supply glut, according to attendees of a government meeting.

Steel overcapacity has not been reversed fundamentally and the recent price rally could result in vulnerabilities, according to a statement released after a meeting held by the National Development and Reform Commission and other relevant departments on Monday.

China's steel mills have reported good profits recently as speculators have splurged on higher prices after government pledged to increase spending on infrastructure construction. Market watchers, however, have warned that the price surge was unlikely to be sustainable.

China aims to slash steel production capacity by around 50 million tonnes and coal by at least 150 million tonnes this year, a key part of the country's supply-side reform.

A ban on inferior steel products and the closure of "zombie enterprises," firms with surplus capacity, are priorities in the excess capacity reduction drive, the statement said.

Given the obstacles, such as unemployment and debts, the drive cannot be completed in one fail swoop -- it requires resilience, composure and innovation, it added.

Last year, China eliminated steel production capacity by more than 65 million tonnes and coal by over 290 million tonnes, both beating government annual targets and ahead of schedule.

Thanks in part to the efforts, China's broader economic growth has shown increasing signs of stabilizing since the second half of 2016, with indicators such as factory prices and industrial profits seeing significant improvements. Endi