China’s Steel Supply Side Reforms to Accelerate
Fitch Ratings expects the consolidation of China’s steel industry to accelerate and for facility upgrades to enhance energy efficiency in the next five years.
Fitch Ratings expects the consolidation of China’s steel industry to accelerate and for facility upgrades to enhance energy efficiency in the next five years. Fitch Ratings said “Industry utilisation rates reached 80% in 2019 and 79% in 2020, up from 70% in 2015 and in line with China’s 13th five-year plan target of 80%. This was despite higher documented steel capacity at end-2020, driven by strong demand. China has eliminated more than 150 million tonnes of undocumented sub-standard steel capacity since the introduction of supply-side reform in 2015. Industry top-10 concentration has improved by 3pp since 2015, to reach 37% in 2019. However, this remains behind the 13th five-year plan target of 60%. The country’s highly fragmented steel market has a large number of small producers with 1-3 million tonnes capacity plants that are unattractive for large state-owned enterprises as acquisition targets. This makes consolidation harder to achieve than in other industries, such as coal and cement.”
Fitch Ratings added “In the next five years, China’s 14th five-year plan emphasises further consolidation targets. We expect consolidation to accelerate with the emergence of mega producers. The 14th five-year plan also contains more requirements for better technology usage and higher energy efficiency in the steel production process.”