China plans to tackle steel industry overcapacity by 2017

The Chinese government will speed up overhauls and increase investment in the metals sector to bring it back to a well-balanced level by 2017.

The draft, published by China's Ministry of Industry, says it plans to bring profit margins and asset returns to a reasonable level, with more than 80 percent capacity utilization.

The main points of the project include: 1. To speed up the process of mergers and acquisitions of steel producers, so that in 2025 the 10 largest companies provide at least 60 percent of the total production. In 2014, the output of the top ten steel producers accounted for 36.6 percent of the total. 2. Improve market access rules to neutralize overproduction. 3. All solid waste will be recycled by 2025, and pollutant emissions and electricity use must meet national standards. 4. Increase the number of research centers, laboratories and industrial associations in order to stimulate the introduction of innovations in the sector.

The move by the government should address the overcapacity issues that China has been grappling with since the 2008 financial crisis. China has hundreds of steel plants with a total annual steel production capacity of about 1.2 billion tons. At the same time, the excess production capacity is estimated at 300 million tons. As demand continues to shrink and signs of overproduction are clear, the government in 2013 vowed to cut production by 80 million tonnes by 2017, roughly equal to the annual steel output in the United States, the world's third-largest producer.

In 2014, 31.1 million tonnes of steelmaking capacity were eliminated. Slower economic growth and chronic overcapacity have pushed steel prices to near 20-year lows, driving steel mills into heavy losses and bankruptcy.