“China’s past tried to curb raw metals output by phasing out outdated capacities have had little success and its present attempt could enjoy a fate no different”, said Henry Liu, regional head of commodity research at Mirae Asset Securities in Hong Kong.
“Local governments usually rely on these businesses to generate fiscal revenues and job opportunities for their economy,” said Liu. “In most cases, ‘capacity elimination’ turned out to be a ‘capacity replacement’ exercise: old and small-sized equipment was exchanged for large modern ones.
“This is the reason why capacities increased rather than being scaled back even after years of crackdown by the government. In this case, the policy actually stimulated capacity expansion.”
“The closures will not be able to help ease the oversupply issue for years, particularly when steel production has clung to record levels,” said Wang Dezhi, an analyst with China Orient Futures.
“The environmental protection standards in the country have changed and they are tougher. The central government’s pressure on local governments is stronger than previous years,” Heng said.