IMF Urges China to Push Harder for More Steel, Coal Capacity Cuts

The International Monetary Fund (IMF) on Tuesday urged China to push for more ambitious targets for its coal and steel industries to cut excess production capacity as Beijing bids to steps up economic reforms.

According to Reuters, a total of 140 million tonnes of steel production capacity and 800 million tonnes of coal capacity – numbers roughly equal to about a tenth of the world’s total output in 2016 – are due to be eliminated over the coming three to five years under existing Beijing plans.

On a global front, the world’s top steel and coal producer, has vowed to launch a campaign to cut excess capacity in various industrial sectors, including coal-fueled power and the construction materials industry, in an effort to cut inefficiencies and tackle pollution.

“The reduction targets are appropriately front-loaded but could be more ambitious,” the IMF said in a statement on Tuesday. The fund’s comments came as part of a broader study of the world’s second-biggest economy.

“Under the current cut targets, crude steel capacity would still be close to 2013 levels and account for nearly half of global capacity by 2018-20 due to previously planned investment,” the IMF said.

The comments came after China released output data on Monday showing producers churned out a record 74.02 million tonnes of cured steel last month – even though July is seen as a low season month as high summer temperatures slow down the construction sector and its demand for steel goods.

Analysts say the output ramp-up at steel mills was likely driven by fat profit margins amid tighter supply and higher prices brought on by capacity cuts already imposed. Some 120 million tonnes of low-tech steel capacity has already been cut.