Overcapacity cuts will be a priority in 2017 for the nation’s top economic planner

China will enact stricter rules for trimming steel overcapacity in 2017 after making significant progress in 2016, according to experts.

Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute, said: “Although steel prices in 2016 rebounded by a large margin and last year’s capacity reduction goal was reached two months ahead of the deadline, the profitability in the industry has not been restored.”

Capacity reduction goal for 2016 — 45 million metric tons — was reached in October. Large and medium-sized steel smelters achieved 28.7 billion yuan ($4.15 billion) profits in the first 10 months of the year, compared with a loss of 38.5 billion yuan in the same period in 2015, according to the China Iron and Steel Association.

However, approximately 27 percent steel companies are still running at a loss. The return on sales has only exceeded 1 percent, far below the average industrial return on sales in the country, according to Li.

What makes the matter even more challenging is that the estimated demand in 2017 is 660 million tons, down by 1.5 percent year-on-year, according to the China Metallurgical Industry Planning and Research Institute.

The short-term goal of capacity reduction is to cut crude steel capacity by 15 percent, or a reduction of 27 million tons, within three years starting from 2016, according to the National Develop- ment and Reform Commission.

Li Bing, chief of the commission’s corporate reform office, said the overall reduction of capacity would be completed by the companies making their own reductions.

Xu Shaoshi, chairman of the National Development and Reform Commission, said that cutting excess production capacity will be a priority for the commission’s work in 2017.

The commission made a statement in December after its annual work conference that it will continue to push supply-side reform, including cutting overcapacity, destocking, deleveraging, reducing corporate costs and shoring up weak links in the economy.

The central government has taken more measures to deter the act of bring-

This excess is seriously polluting the environment and churning out low quality steel. In 2017, there will be stricter administrative and environmental standards.” Chen Kexin, chief analyst of the Lange Steel Information Research Center