Hebei to Shutter 60% of Steel Firms by 2020

Over the next 5 years, Hebei plans to cap capacity at 200 million tons annually, with 8 million tons set to be cut in 20
16. Achieving the goal requires shutting the equivalent of 60% of existing firms.
Yicai: 河北省长张庆伟：压减钢铁产能 将关停60%企业

Market forces are already driving closures.

Sina: 河北钢铁业：市场调节“去产能”

"Hebei is now out of production capacity, mostly small and medium steel enterprises county level, Handan and Tangshan bit more." Handan Iron and Steel(Hereinafter referred to Hangang), a source told the Southern Weekend reporter.

According to the former vice president of Hebei Province Prospering Metallurgical Industry Association statistics, as of January 1, 2016, Tangshan steel mills have shut down ten, can shut down a total of 16.09 million tons off.

"Tangshan 60% -70% iron and steel enterprises are at a loss, industry-wide losses." Prospering said.

He went on to note that furnaces cannot be shut without damaging them, so once production ceases, the mills are likely to close. Mills continue producing at losses to keep the furnaces running and to maintain customer relationships. If they shut for even a month, they can permanently lose customers. Most companies that shut are those that run out of funding.

　　Tangshan steel production 82.7 million tons in 2015, 270,000 workers in the steel industry, with nearly 400,000 in related industries, but small-scale private enterprises in Tangshan, more dispersed, it's a mess. Industry winter, has been discontinued, semi-cut, continued loss, insolvency, "zombie companies" rely on government subsidies and replenished bank loans to maintain operations, become the first batch of the fallen.

Tangshan is of course very interested in the government's latest economic policy. From a CITIC report:

Sina: 中信策略：以唐山窥全国 供给侧改革到底怎么干

Tangshan economy: higher level of development of the province, Steel is the first pillar. Total and per capita GDP of Tangshan City in Hebei annual GDP ranked first. 2014 per capita GDP was 80,655 yuan in Tangshan, Hebei Province is twice the average, far higher than the national. In the economic development of Tangshan Steel is truly the first pillar. Tangshan Iron and Steel in the economy accounted for about 15%; total employment Tangshan 450 million, of which about 50 million people in the iron and steel; and tax, the steel industry accounts for more than one percent.

Tangshan Iron and Steel: a large scale, market fragmentation, severe overcapacity, industry-wide losses. The end of 2015, total capacity of 130 million tons of steel in Tangshan, Hebei accounted for about 50%, accounting for about 10% of the country; crude steel and steel production accounts for 10.3% and 10.0%, crude steel production even more than the United States, par India and Japan. Overall, however, Tangshan Iron and Steel industry market structure dispersion, concentration is relatively low. 44 smelting enterprises, the production capacity of only 20 million tons Shougang and Tangshan Iron and Steel, 80% -90% of the business capacity are between 300-1000 million tons. In recent years, Tangshan severe overcapacity, steel blast furnace at the end of 2015 the operating rate has dropped below 80%, crude steel capacity utilization at 62.9%. Falling demand and excess capacity led to industry-wide losses: 2015 Tangshan Iron and Steel industry losses 3.06 billion yuan, 4.35 billion yuan profit in 2014.

Capacity to Impact: drag Growth, Employment, NPL implied risks. In 2013, Tangshan Iron and Steel to resolve excess capacity to develop programs and in 2013 - were severely eliminated in 2015. Relatively early 2013, the current total capacity of steel dropped by about 10%, but the negative impact on the economy is relatively large. According to the estimates, in 2013 - three years between 2015 and resolve overcapacity drag on economic growth Tangshan respectively 3.3,2.3,1.3 percentage points; Yajian 40 million tons of steel production capacity, employment directly affects 6.8 million; total loans to the steel industry in the financial agency loans accounted for more than 10%, some banks reached 50%, to defuse the risk of excess production capacity will be brought increases in bad loans.

Tangshan glimpse of the country: there is no storm, steady progress the optimal path. In 2013, Tangshan City in 2017 to resolve the surplus target was reduced to a total capacity of about 130 million tons; according to the latest situation, Tangshan possible to set a target of 2020 to around 100 million tons. Excess capacity to resolve, it will be a slow process, quite different with market expectations. Resolve excess capacity on the market want to use one month to six months, all the backward production capacity out is completed, to achieve rapid clearing. This reflects the urgent hope that the supply-side reforms. But in the economic downturn stage, the risk will gradually accumulate and explode. From the government level, should consider stability, growth, employment, taxation, financial risk and other issues; from the market level, decentralized market structure results to production capacity in the Game is serious; from the financial level, the Bank will work with companies hold together for warmth, rather than from enterprise pumping loans, as this would lead to non-performing loans increased significantly. Therefore, from a practical point of view, stormy clearing does not meet the interests of all, steadily and orderly resolve is the best choice.