IMF urges China to be bolder on steel, coal capacity cuts

BEIJING, Aug 15 (Reuters) - The International Monetary Fund (IMF) on Tuesday urged China to set more ambitious targets for its coal and steel industries to cut excess production capacity and bring more efficient plant on line as Beijing bids to steps up economic reforms.

China, the world’s top steel and coal producer, has vowed to launch a campaign to cut excess capacity in various industrial sectors, including coal-fuelled power and the construction materials industry, in an effort to cut inefficiencies and tackle pollution.

A total of 140 million tonnes of steel production capacity and 800 million tonnes of coal capacity - numbers roughly equal to about a tenth of the world’s total output in 2016 - are due to be eliminated over the coming three to five years under existing Beijing plans.

“The reduction targets are appropriately front-loaded but could be more ambitious,” the IMF said in a statement on Tuesday. The fund’s comments came as part of a broader study of the world’s second-biggest economy.

“Under the current cut targets, crude steel capacity would still be close to 2013 levels and account for nearly half of global capacity by 2018-20 due to previously planned investment,” the IMF said.

The comments came after China released output data on Monday showing producers churned out a record 74.02 million tonnes of cured steel last month - even though July is seen as a low season month as high summer temperatures slow down the construction sector and its demand for steel goods.

Analysts say the output ramp-up at steel mills was likely driven by fat profit margins amid tighter supply and higher prices brought on by capacity cuts already imposed. Some 120 million tonnes of low-tech steel capacity has already been cut.

China’s most-traded rebar futures and thermal coal futures contracts have gained nearly 45.4 percent and 44.9 percent respectively this year.

To toughen its programme of cuts, IMF said China should avoid excessive reliance on administrative measures such as reduced working days at existing plant, company mergers and guidance on prices.

“Greater use of (coal) resource and environmental taxes, reducing energy subsidies, and stricter enforcement of regulatory standards will help phase out sub-standard capacity,” the IMF said. (Reporting by Muyu Xu and Beijing Newsroom; Editing by Kenneth Maxwell)