China shutting down steel capacity unlikely to change global situation

The closure comprises only 9% of the low quality steel capacity

China shutting down part of its steel capacity is not going to bring material change to the global demand-supply equation of the commodity.
 

The news reports about the country's decision to close down low quality steel capacity on Wednesday took stock prices of domestic steel majors such as Tata Steel, JSW Steel, Jindal Steel & Power, Bhushan Steel, and Steel Authority of India up between 4% to 11% on the BSE.

This closure, however, comprises only 9% of the low quality steel capacity which is again a small portion of the total 1.13 billion tonne steel capacity of the country. So, the move is not big enough to make much change in the overall global steel industry scenario, said analysts.

"Stock prices of domestic steel companies are up today on sentiment but at business level no material change is expected due to China capacity closure," said Abhisar Jain, senior analyst with Centrum Brokerage.

While China, the world's largest producer and consumer of steel, has pledged to cut about 150 million metric tonne of capacity by 2020, the nation continues to flood other countries with the commodity amid slow economic growth. In the last couple of years, several countries including India have taken multiple measures to reduce the cheap Chinese steel imports into their country.

Most analysts were of the view that China needs to take deeper cuts in production to rein in the oversupply situation in the global steel market.

India has so far raised import duties, levied safeguard measures till 2018 and has set floor prices on shipments to curb the inflow and help domestic players.

Though India has remained a net importer of total finished steel during Apr-Dec, total imports of the commodity in the period under review have declined 38% to 5.495 million tonne, according to the steel ministry data. While production of total finished steel has grown 11% to 73.771 million tonne compared with same period last year, consumption has grown a meager 3.3% in April-December over the corresponding period.