China's Baosteel to slash capacity through 2018 in supply-side reform

A woman is reflected on a wall with a company logo of Baosteel Group at an office in Shanghai, July 24, 2011. REUTERS/Stringer

SHANGHAI (Reuters) - Baosteel Group, China’s second-biggest steelmaker, plans to cut its crude steelmaking capacity over the next two years as part of its efforts to push through supply-side reform, it said on its website on Tuesday.

Baosteel’s announcement comes as China’s government works to reduce capacity gluts in the steel and coal sector. Beijing has earmarked 27.6 billion yuan ($4.12 billion) in funds to pay for closures in the sectors as the country has pledged to cut up to 150 million tonnes of steel capacity and 500 million tonnes of coal output in the next three to five years.

Overcapacity in China’s steel sector has also created trade tensions as India, Australia and the United States have imposed duties on Chinese steel exports amid allegations of dumping.

Baosteel pledged to cut 9.2 million tonnes of crude steel capacity between 2016 and 2018, the company said. That’s equivalent to about one-quarter of its 2015 production of 36.11 million tonnes.

The capacity shutdowns will include facilities in its flagship plant in Shanghai and branches outside of the city. The company will not resume production after the closures, it added.

Baosteel’s cutback’s follow a statement by the State-Owned Assets Supervision and Administration Commission on Friday that China’s government-run steel and coal firms will cut capacity by about 10 percent in the next two years, and by 15 percent by 2020.

The listed units of Baosteel and Wuhan Steel Group, the country’s sixth-largest mill, separately said last month that they are planning to restructure, without specifying details.

Baosteel’s chairman Xu Lejiang told a government meeting on July 8 that the large state-owned steel firms should use mergers and acquisitions to improve the concentration level of the industry and urged the government to step up efforts to close inefficient capacities, the company said on its website on Monday.

In April, a Chinese government official said the country has 1.13 billion tonnes of crude steel-making capacity.

Reporting by Ruby Lian and John Ruwitch; Editing by Christian Schmollinger