China is fighting international pressure to speed up its timetable for shutting down surplus steel plants despite warnings that a temporary price surge will collapse by next year.
The country has been promising for the past decade to cut its huge production overcapacity, which competitors blame for depressing world steel prices and environmentalists cite for energy waste and smog.
Last year, China made 803.8 million metric tons of crude steel with production capacity of 1.13 billion tons, according to the World Steel Association and the Ministry of Industry and Information Technology (MIIT).
China's steelmaking capacity may actually be higher than that.
In April, an MIIT official told a conference that "some dead capacity" was not included in the ministry figure, Reuters reported. The previous capacity estimate was 1.2 billion tons.
China's overcapacity of at least 326 million tons exceeds the combined output of the second, third and fourth-ranked producers—Japan, India and the United States.
A decade ago, China made less than one-third of the world's steel. Last year, the country produced nearly half of global output, but the domestic industry lost 64.5 billion yuan (U.S. $9.6 billion), according to the China Iron and Steel Association (CISA).
China's government has responded to international trade complaints, anti-dumping measures and tariff penalties by setting tougher targets for capacity cuts, freezing licenses for new projects and pledging to kill off "zombie" companies that have been kept alive by easy bank loans.
But despite claims of shedding 90 million tons of capacity by the end of last year and promises to cut another 100 million to 150 million tons by 2020, some production lines have reopened this year to take advantage of short-term price gains.
Warnings abound
In March, analysts warned that some 160 million tons of steelmaking capacity had come back online in Tangshan, a northeast industrial center in Hebei province.
Recent reports cite firming prices due to economic stimulus spending and supply disruptions caused by widespread flooding.
But a Goldman Sachs & Co. report this month warned that China's steel demand will fall 2 percent in both 2017 and 2018 after rising by 1 percent this year, eventually contracting by as much as 20 percent, Bloomberg News said.
Hopes for higher prices rose again this month after the Tangshan local government ordered heat treating plants to cut production in the second half of July to meet environmental targets, Reuters reported.
But the central government and the industry have both shown signs of resistance to change.
On July 6, Ministry of Commerce spokesman Shen Danyang denied that China encourages steel exports, arguing that its output "primarily meets domestic demand" and that the government has raised export tariffs on "some products," the official English-language China Daily reported.
But five days later, China's General Administration of Customs reported that steel exports in June had risen to their second-highest monthly level on record, according to Reuters.
First-half steel output of 399.5 million tons edged down 1.1 percent, but June production of 69.5 million tons rose 1.7 percent, the National Bureau of Statistics (NBS) said.
The EU’s stance
After meeting with officials in Beijing on July 13, European Commission President Jean-Claude Juncker said the European Union is considering new steps to guard against unfair competition.
"The EU will defend its steel industry. We are not defenseless and we will use all the means at our disposal," said Juncker, Agence France-Presse reported.
Juncker said the EU could delay granting China "market economy status," which Beijing has been seeking to reduce anti-dumping measures and tariff barriers to trade.
At a meeting with German Chancellor Angela Merkel on July 16 during the Asia-Europe Summit in the Mongolian capital Ulan Bator, Premier Li Keqiang urged the EU to approve market economy status for China by December, the date set by the country's accession accord with the World Trade Organization in 2001.
Last week in Brussels, EU commissioners discussed compromise rules for higher trade penalties in "extreme" dumping cases but left the outcome unclear.
"China is not a market economy," EU Trade Commissioner Cecilia Malmstrom said, as quoted by Reuters. "We are not granting it market economy status. If it were a market economy, it wouldn't have the problems we are seeing."
The Juncker threat contrasted sharply with milder responses to the steel problem that China has endorsed.
At a G20 meeting in Shanghai on July 10, trade ministers of the major economies approved a carefully orchestrated statement that avoided blaming the host country for the world steel glut.
"We recognize that excess capacity in steel and other industries is a global issue which requires collective responses," the statement said.
Source: RFA