China fails to cut steel production as mills restart on rally

Singapore

CHINA cannot seem to avoid producing more steel than the world needs. After the government said in February that it would cut production capacity by as much as 13 per cent, a rebound in prices from the lowest in more than 12 years proved too much of a temptation in a country that supplies half of the world's steel. While the rally was fuelled by expectations for less supply, the improved profit margins that came with it encouraged idle mills to restart. Output has swelled in 2016, reaching record levels.

Failure to reduce capacity by the target - 150 million tonnes over the next five years - spells trouble for an industry that saw widespread losses in 2015. Chinese exports are near all-time highs, while regulators in the US, Europe and India impose punitive tariffs to protect their domestic markets. And with most of China's producers owned by local governments, uncompetitive mills known as zombie enterprises remain a drain on its economy.