China launches probe into steel capacity amid surging output

BEIJING (Reuters) - China has started investigating production capacity at its steel mills amid increasing worries about the rapid growth in output this year, according to a notice circulated online on Monday.

FILE PHOTO: Workers are seen at a wire rod rolling mill of a steel firm during a media tour in Qingdao, Shandong province, China September 27, 2019. REUTERS/Min Zhang

The notice jointly issued by the National Development and Reform Commission, Ministry of Industry and Information Technology (MIIT) and the National Bureau of Statistics urges local governments and the State-owned Assets Supervision and Administration Commission (SASAC) to verify the steel firms’ capacity, production and fixed-asset investments.

Local governments will check the mills under their administration while SASAC will look into national steel firms, the notice said.

All three government units confirmed the authenticity of the notice, dated Nov. 4, without commenting further.

China has eliminated more than 150 million tonnes of steel capacity over the past three years as part of its environmental crackdown and supply-side reforms.

However, the amount of steel churned out by the world’s top steelmaker in the first ten months of 2019 rose 7.4% from the year earlier period, despite sluggish demand because of a slowing economy and a bruising trade war with the United States.

An official from the MIIT warned in September that China is still having trouble with rising illegal new capacity, including an increase in capacity swaps, in which companies move plants to other regions to reduce the concentration of production in polluted industrial areas.

Utilization rates at some steel firms soared to over 150% in 2019, data from the notice showed.

The investigation will review the changes in capacity and smelting equipment in China’s steel sector since 2016, the notice said.

“For mills that have a capacity change, over 10% output growth in the Jan-Sept period, and more than 100% utilization rate, (the local governments and SASAC) should look into the causes,” according to the notice.

The local governments and SASAC were asked to submit the results of their investigations by Nov. 29.

Reporting by Min Zhang and Dominique Patton; Additional reporting by Beijing Newsroom; Editing by Christian Schmollinger