Shares in China’s biggest steelmakers rose after Chinese Premier Li Keqiang (李克強) pledged deeper cuts to capacity, backed by support for workers who lose their jobs amid a restructuring of the world’s biggest steel industry.
Hebei Iron & Steel Co Ltd (河北鋼鐵集團), the top steelmaker, outpaced the benchmark index to rise as much as 4.3 percent to 3.38 yuan in Shanghai, while Baoshan Iron & Steel Ltd (Baosteel, 寶鋼), the second-biggest, rose 5.3 percent.
China aims to shut between 100 million and 150 million tonnes of capacity as it tackles oversupply in heavy industry, according to a statement on Sunday on the government’s Web site, citing a State Council meeting on Friday. No time frame was mentioned.
“The capacity-reduction targets are not aggressive, but it still helps rebalance the steel market,” Argonaut Securities (Asia) Ltd analyst Helen Lau said in a note.
A reduction of up to 150 million tonnes would “slightly improve” utilization rates, she said.
Bloomberg Intelligence reported in November that China’s crude steel capacity reached 1.16 billion tonnes in 2014, citing the China Iron & Steel Association (中國鋼鐵協會), causing utilization to drop to 71 percent, the lowest in more than a decade.
Still, the Chinese market has remained heavily oversupplied, creating a global glut and triggering trade tensions as the nation exports its surplus.
China’s heavy industry is facing the weakest demand in a generation, as the government steers the world’s second-biggest economy away from reliance on infrastructure and investment toward consumer-led growth, forcing cuts to jobs and output.
The Friday meeting said “resolving overcapacity in the steel and coal industries” is an important step in promoting supply-side reforms.
China’s coal industry would see “large-scale” reductions in output, according to the statement.
China Coal Energy Co (中煤能源) rose 2.7 percent in Hong Kong and China Shenhua Energy Co (神華能源) climbed 1.4 percent.
Li also highlighted the need for measures to redeploy or support employees laid off by plant closures, the statement said.
These include proper payment of wages and social security, help in starting new businesses or transferring to other industries, and ensuring that assistance is given in a timely manner.
The easiest shutdowns in the steel industry have already happened, HSBC Holdings PLC said in report last month that warned large-scale layoffs had the potential to spark social unrest.
Job cuts in the steel, coal, cement, aluminum and glass industries may total as many as 3 million in the next three years, China International Capital Corp (中金公司) said on Jan. 11.
Firms that meet capacity closure targets will be helped in reducing their staff and disposing of bad assets, Li said during a meeting in Shanxi Province, according to a Jan. 7 China Central Television report.
Hebei Steel trimmed gains to 1.54 percent to end at 3.29 yuan, while Baosteel rose 2.4 percent to 5.62 yuan.
