Fitch Ratings expects the consolidation of China's steel industry to accelerate and for facility upgrades to enhance energy efficiency in the next five years.
Industry utilisation rates reached 80% in 2019 and 79% in 2020, up from 70% in 2015 and in line with China's 13th five-year plan target of 80%. This was despite higher documented steel capacity at end-2020, driven by strong demand. China has eliminated more than 150 million tonnes of undocumented sub-standard steel capacity since the introduction of supply-side reform in 2015.
Industry top-10 concentration has improved by 3pp since 2015, to reach 37% in 2019. However, this remains behind the 13th five-year plan target of 60%. The country's highly fragmented steel market has a large number of small producers with 1-3 million tonnes capacity plants that are unattractive for large state-owned enterprises as acquisition targets. This makes consolidation harder to achieve than in other industries, such as coal and cement.
In the next five years, China's 14th five-year plan emphasises further consolidation targets. We expect consolidation to accelerate with the emergence of mega producers. The 14th five-year plan also contains more requirements for better technology usage and higher energy efficiency in the steel production process.
Source: Fitch Ratings
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