Official calls 3-year halt to steel projects

The mainland will not approve any new steel projects for the next three years in a move to curb overcapacity in the industry, a top government official said yesterday.

'I'd like to call on [all central government departments] to refrain from approving new steel projects in the next three years,' Minister of Industry and Information Technology Li Yizhong said at a press conference.

'For the technical upgrading projects in the steel sector, the approval of which falls within my ministry's authority, those purely aimed at capacity expansion will absolutely be rejected.'

Mr Li said mainland steelmakers had the capacity to produce 660 million tonnes of steel a year, but the annual demand was 470 million tonnes, excluding another 58 million tonnes of capacity now under construction.

In March this year, the mainland also vowed to control its steel production. The government said it wanted to hold capacity to about 500 million tonnes by 2011 to cater for demand it then estimated at about 450 million tonnes.

'The minister's appeal has revealed not only grimness and the urgency of the issue but also a kind of helplessness in tackling the problem,' said Xu Xiangchun, the chief analyst at Mysteel Research Institute.

The final say in approving steel projects belongs not to Mr Li's ministry but the National Development and Reform Commission.

Provincial governments are also very active in launching steel projects and expanding their existing steel production capacity to boost their local economic growth and refurbish their governance record.

'All this usually reduces the efforts to control steel overcapacity to something like grappling against the wind,' said Mr Xu.

But Mr Li said the government's efforts in consolidating the steel industry through mergers and acquisitions and closures of small plants were paying off, but he did not elaborate.

He added that reduced steel capacity would dampen domestic steelmakers' irrational thirst for iron ore imports and hence help the nation's ongoing talks with the world's major ore suppliers for a 40 per cent price cut.

'We have noted something not so satisfactory - the relatively fast increase of iron ore prices in the spot market, for example,' Mr Li said.

'But with further efforts to curb overcapacity through restructuring turning out, I don't think domestic demand for iron ore will keep surging endlessly.'

He said the sharp fluctuations in iron ore prices from US$160 per tonne to US$30 last year had affected the national interests. He called for a compromise in the iron ore talks.

'I hope the suppliers will look at the issue from the perspective of a long-term and friendly strategic co-operation with China and deal with the matter fairly,' he said.

Mr Li also said the government had not yet decided whether to extend a tax cut for some vehicle purchases, a preferential policy to help cope with the global economic downturn.

In January, the mainland halved the purchase tax on vehicles with engines of 1.6 litres and smaller to 5 per cent, a reduction set to expire at the end of the year.

Real clout

Final say in approving fresh steel ventures belongs to the NDRC

Steelmakers' capacity is 660 million tonnes each year, but demand is only: 470m