China's major capacity elimination campaign since 2016 has boosted both domestic steel prices and company profits. However with massive steelmaking capacity eliminated in China over 2016-2017, the benefit this brought to the industry may have topped out and will dwindle as the number of closures shrinks, Kallanish notes.

According to China’s premier Li Keqiang China aims to eliminate 140 million tonnes/year steel capacity within 3 to 5 years. In 2016 China cut more than 65m t/y of steel capacity and this year the government plans to cut 50m t/y. The director of the National Bureau of Statistics Ning Jizhe said on 10 October that steel, coal and thermal electricity industry capcity closures will be achieved on time this year. China also announced in July that it had cut 120m t/y of mislabelled steel capacity, and high pressure would be maintained on mislabelled steel and newly-added steel capacity to prevent restarts.

Chi Jingdong, the deputy director of China Iron & Steel Association, comments that after 2017 capacity elimination targets will be much easier to achieve. Chi expects the remaining capacity cuts to be completed through internal restructuring at steel companies.

Kallanish has monitored that China still has to conclude around 25m t/y of steel closures to hit its targets in the next few years. The number could be less if targets are surpassed this year however. In any case, China should certainly expect less market impact from capacity closures compared with 2016 or 2017.