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Next Year's Production Capacity Target Emerges: Coal And Steel Or 10% Increase

- Feb 22, 2019 -

According to the Economic Reference Daily, which is in charge of Xinhua News Agency, on the basis of the task of clearing excess capacity of coal and steel ahead of schedule this year, in 2017, the capacity will be increased and enlarged.

In 2017, the output of coal and steel industries will increase by more than 10%, and the scope of production will be extended to cement, glass, electrolytic aluminium and ship industries.

At the same time of increasing the quantity index of coal deactivation capacity, next year a number of coal mines with serious disasters, exhausted resources, backward technology and equipment, lack of safe production conditions and inconsistent with the coal industry policy will be eliminated, with emphasis on eliminating the backward capacity of less than 300,000 tons. Strictly control new production capacity, through reduction replacement, dispose of incomplete coal mines under construction and suspected illegal coal mines in accordance with the law, and develop advanced production capacity in an orderly manner. We should standardize the order of coal mine production and construction, and strengthen the management of violations such as unauthorized construction first and super-capacity production. The next step is to clarify the advanced production capacity standard as soon as possible, build a part of large modern advanced coal mines in an orderly manner according to the principle of reduction replacement, increase advanced production capacity and ensure supply safety.

The capacity of cement, flat glass, electrolytic aluminium and ship industries has also risen to the central level. This year, the Ministry of Industry and Information Technology and other relevant departments began to formulate relevant opinions on eliminating backward production capacity in the above-mentioned industries, and set up red lines for environmental protection, energy consumption, quality, safety and technology. Any relevant capacity that fails to meet the standards must be withdrawn.

The recent Central Economic Work Conference emphasized that we should prevent the resurgence of the defused excess capacity and continue to promote the iron and steel and coal industries to defuse the excess capacity next year.

Nur Baikeli, deputy director of the National Development and Reform Commission and director of the State Energy Administration, also said at the national energy work conference that the downward risk of coal demand in power generation, steel, building materials and other industries is great, and coal consumption is expected to continue to decline in 2017. This year's capacity removal measures have not fundamentally changed the situation that the coal market is oversupply. In the next three to five years, capacity removal will remain the mainstream of coal industry development.

People's Daily published a front-page comment on December 27, saying: to go to capacity, rank; three to go, one to fall, one to make up for the top five tasks, related to the success or failure of structural reform on the supply side, must not give up halfway.

For coal, steel and other industries next year's capacity targets, the Economic Reference Daily quoted industry insiders as saying that with the promotion of capacity increase, the profits of the above industries will be greatly improved. Anpeng, an analyst at Guangfa Securities, judges that most companies'earnings will rebound to at least 2012 and 2013 levels next year.

In addition to capacity removal, debt resolution has entered a critical stage. Recently, several ministries and commissions jointly issued "Several Opinions on Solving the Financial Credit and Debt Problem of Overcapacity in Iron and Steel and Coal Industry", and put forward many measures, such as increasing financial support for mergers and reorganizations of iron and steel and coal enterprises, and strictly controlling the credit investment of irregularly increased iron and steel and coal production capacity.

Qin Yuan, an analyst at Societe Generale Securities, believes that in 2016, there are signs of de-leverage in the steel industry. With the introduction of policies and measures such as debt-to-equity swap, the merger of WISCO has also landed, and the idea of de-leveraging the advantages and disadvantages has initially emerged. In 2017, the overall solvency of the industry will be further enhanced, and the credit spreads of the industry will be further reduced. However, there is still the possibility of credit risk incidents.

Regarding the reform of domestic steel state-owned enterprises, Qin Yuan said that in view of the potential targets of regional reorganization of Hebei Iron and Steel Group and Shougang Iron and Steel Industry, Anshan Iron and Steel Group and Benxi Iron and Steel Group, the central government may need to see that the merger of Baosteel and WISCO has achieved certain results before it has the momentum to promote the reorganization.