Recently, the National Development and Reform Commission announced on its official website that it has approved three major steel projects: Fangchenggang in Guangxi, Zhanjiang in Guangdong, and Qiangang in Shougang. Among them, the total investment of the two steel bases, Fangchenggang in Guangxi and Zhanjiang in Guangdong, has exceeded 130 billion yuan. The author remembered the picture of Zhanjiang Mayor Wang Zhongbing holding the approval document with a deep kiss and ink fragrance, which left a deep impression. However, it remains unclear whether these newly approved steel projects are aimed at controlling production capacity or high-level redundant construction? External opinions vary.
As for production capacity, we know that China's steel production capacity is still in surplus. On the 27th, internal statistics from the China Iron and Steel Association showed that the daily crude steel production of key steel enterprises in mid May was 1.6921 million tons, a decrease of 0.35% compared to the previous month. The estimated daily crude steel production nationwide is 2.0395 million tons, a decrease of 0.25% compared to the previous ten day period, and crude steel production has slightly declined from its historical high. The continuous decline in steel prices in May has weakened the production enthusiasm of steel mills, resulting in a slight decrease in crude steel production. However, it is still difficult to alleviate the long-term oversupply situation faced by the steel industry. For the recently approved steel projects, although they are all based on the premise of reducing steel production capacity, there are doubts from the outside world about whether they can really control steel production capacity.
We know that since 2009, in order to control steel production capacity, the Chinese government has implemented strict regulations on the steel industry that prohibit new projects for three years. At present, the industry layout adjustment still faces a dilemma, whether to adjust or not, the contradiction between production capacity and resources, and the contradiction of overcapacity, which makes people very conflicted.
Li Zhongjuan, Deputy Inspector of the Industry Coordination Department, stated at the "Special Work Meeting on Optimization of Steel Industry Layout and Structural Adjustment" that the "12th Five Year Plan" period is a favorable opportunity for China's steel industry to increase structural adjustment, and overcapacity provides a market environment for controlling total production and adjusting structure. The Wuhan Iron and Steel and Baosteel projects are actually replacing outdated production capacity with advanced production capacity, not just launching new projects. These two projects are located in major steel consuming provinces such as Guangdong and Guangxi, while also radiating to the southeast coastal and Southeast Asian markets, with significant geographical advantages. Nowadays, a large amount of steel consumption is located along the southeast coast, but goods have to be transported from North China, resulting in high and unreasonable logistics costs. Therefore, these projects have the necessity to exist.
However, currently China is the world's largest producer of steel. According to data from the Metallurgical Industry Planning and Research Institute, as of the end of 2011, China's crude steel production capacity had reached around 900 million tons. Of the 357 million tons of production capacity that has been under construction since 2005, 79% have not obtained national approval as required. In the current situation of overcapacity and low profitability in the steel industry, who can say that the essence of these project constructions is not high-level redundant construction?
However, some people also say that these projects have a construction period of about three years and will not generate production capacity for a long time. After the projects are put into operation, the Chinese steel industry may have already completed the elimination of outdated production capacity and may not have surplus. The most important thing is that the approval of these two projects is based on the condition of replacing a part of the production capacity, so as long as the replacement of production capacity is effectively implemented, the impact on the overall production capacity of China's steel industry is "okay". I just don't know about the final execution ability.
Overall, the ban on new projects within three years has indeed left many regions feeling frustrated. It cannot be said that these new batches of projects are bad, and eliminating outdated production capacity is necessary under all circumstances. However, projects have both advantages and disadvantages. New projects must be implemented well, otherwise it may lead to further increase in production capacity and exacerbate the overall overcapacity, which will be both funny and painful.
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