Adhering to Deepening Supply-Side Structural Reform

Accelerating the Green and Low-Carbon Development of the Steel Industry

—Second Interpretation of the 2021 Steel Capacity Reduction "Review" and Crude Steel Production Reduction Work Deployment by the National Development and Reform Commission and the Ministry of Industry and Information Technology

Recently, the National Development and Reform Commission and the Ministry of Industry and Information Technology jointly released information regarding the 2021 work on steel capacity reduction and crude steel production reduction. The information indicates that the steel capacity reduction "review" and crude steel production reduction will be key tasks for the steel industry in 2021. At the start of the 14th Five-Year Plan, the relevant national departments are conducting this work, fully demonstrating the country's determination to further deepen supply-side structural reform in the steel industry. The entire industry must attach great importance to this, organize fully, plan carefully, and work together to complete these two key tasks in 2021.

I. Conducting a "Review" of Capacity Reduction to Consolidate and Enhance the Achievements of the Steel Industry's Capacity Reduction During the 13th Five-Year Plan Period

In February 2016, the State Council issued the "Opinions on Resolving Overcapacity and Achieving Development in the Steel Industry" (State Council Document No. 6 [2016], hereinafter referred to as Document No. 6), initiating supply-side structural reform in the steel industry. By the end of 2018, steel capacity reduction exceeded 150 million tons, and "inferior steel" production capacity exceeded 100 million tons, achieving the upper limit target of the 13th Five-Year Plan for capacity reduction two years ahead of schedule. The industry achieved a turnaround, enterprise operating efficiency improved, and market order continued to improve. However, how to continuously consolidate and enhance the achievements of capacity reduction has become a common concern in the industry.

(I) A "review" of capacity reduction is a powerful measure to consolidate and enhance the achievements of capacity reduction. During the capacity reduction process during the 13th Five-Year Plan period, various regions shut down and eliminated a large number of inefficient and ineffective capacities in accordance with their capacity reduction tasks. However, some regions still have issues involving suspected new steel smelting capacity. At the same time, in the process of replacing old capacity with new capacity, some projects had incomplete procedures, and some companies took the opportunity to expand capacity by "playing on the edge." The "look back" at steel capacity reduction will effectively solidify the implementation of capacity reduction work and related rectification measures across various regions since 2016, consolidating and enhancing the achievements in steel capacity reduction.

(II) The "look back" at capacity reduction serves as a phased summary of supply-side structural reform. Significant progress was made in steel capacity reduction during the 13th Five-Year Plan period, resolving excess capacity, eliminating substandard steel production, and resulting in a substantial recovery in industry efficiency. Through this "look back," regions will conduct self-examination and self-correction of their steel capacity reduction work during the 13th Five-Year Plan period. Members of the inter-ministerial joint conference will provide on-site guidance and inspection, and all relevant parties will cooperate fully to systematically summarize the steel capacity reduction work, extract best practices, and continuously improve work measures.

(III) The "look back" at capacity reduction is an important guarantee for continuing to advance supply-side structural reform. During the 13th Five-Year Plan period, the overall domestic steel production capacity decreased, but newly built or upgraded smelting equipment had higher production efficiency compared to the replaced old equipment, which to some extent exacerbated the rapid growth of domestic crude steel production, posing a new risk of supply-demand imbalance for the industry. By reviewing the steel capacity reduction efforts, we aim to consolidate and enhance the results of capacity reduction while continuing to strictly control the total steel production capacity. Simultaneously, we will resolutely curb the unreasonable growth of crude steel output.

II. Reducing Crude Steel Output to Promote the Steel Industry's Leading Role in Achieving Carbon Peak

The 14th Five-Year Plan period is crucial for China to achieve carbon peaking and carbon neutrality. As a key sector contributing significantly to carbon emissions in my country's manufacturing industry, reducing crude steel output will effectively promote the industry's green, low-carbon transformation and high-quality development, accelerating the achievement of carbon peaking in the steel sector.

(I) Reducing crude steel output is a crucial measure for achieving carbon peaking first. my country aims to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. As a major emitter of carbon dioxide, the steel industry must adopt strong policies and measures as early as possible to vigorously promote green and low-carbon development. Reducing crude steel output, actively promoting the optimization of process structures and the application of new technologies such as short-process steelmaking, non-blast furnace ironmaking, and hydrogen metallurgy, will significantly reduce carbon dioxide emissions, laying the foundation for the steel industry to achieve carbon peaking as soon as possible. (II) Reducing crude steel production is a necessary measure to deepen supply-side structural reform. Since the 13th Five-Year Plan period, policies and measures for supply-side structural reform in the steel industry have been continuously deepened and advanced. Document No. 6, which strictly prohibits new smelting capacity, ensures that the total steel production capacity does not increase; the "Notice on Improving Steel Capacity Replacement and Project Filing" (NDRC Document No. 19 [2020], hereinafter referred to as Document No. 19), which suspends steel capacity replacement and project filing, strictly controls the disorderly construction of steel projects. Carrying out crude steel production reduction is a further deepening of supply-side structural reform and will effectively promote the industry's accelerated green, low-carbon transformation and high-quality development.

(III) Reducing crude steel production is an effective measure to promote enterprise transformation and upgrading and accelerate mergers and acquisitions. While the 13th Five-Year Plan achieved significant results in reducing steel production capacity, progress in industry process structure adjustment, transformation and upgrading, and mergers and acquisitions has been slow. The top ten steel companies' share of national crude steel production has not yet exceeded 40%. The reduction of crude steel production, through national coordination and strengthened top-level design, and by implementing differentiated policies based on the environmental sensitivity of different regions, the environmental protection level of enterprises, and their energy consumption levels, will effectively accelerate the transformation and upgrading of enterprises and the process of industry mergers and acquisitions, thereby increasing industrial concentration.

Achieving carbon peaking and carbon neutrality is a broad and profound systemic transformation of the economy and society. During the 14th Five-Year Plan period, China is about to enter a new stage of development, and the steel industry must accelerate the construction of a new development pattern under the guidance of the new development philosophy. For 2021, the steel industry should conduct a thorough review of steel capacity reduction and crude steel production reduction, and, in conjunction with the upcoming steel industry carbon peaking plan, actively and orderly promote supply-side structural reform, vigorously promote green and low-carbon transformation and development, continuously adjust process structures and energy consumption structures, continuously promote carbon emission reduction, and accelerate the steel industry's simultaneous progress towards carbon peaking and high-quality development. (Author: Zhang Longqiang, Party Secretary and President of the Metallurgical Industry Information and Standardization Research Institute)