Aug 1 (Reuters) – China’s plans to force more than 1,900 companies to cut excess capacity in bloated industries including aluminium, steel and copper have met with an underwhelming response from the market.
Certainly, the moves to make China’s heavy industries more efficient will have little immediate market impact, but what analysts and investors may be shrugging off a little too lightly is that once trends and processes start, they tend to gather momentum.
The edict to close some capacity by September will do very little to end surpluses in aluminium and steel production in China, as they will impact less than 1 percent of capacity.
In aluminium, about 260,000 tonnes of annual capacity may be shut, a fraction of the existing capacity of about 27 million tonnes, which is already about 28 percent higher than demand of about 21 million tonnes.
For steel, the ruling may result in about 7 million tonnes of annual output being idled, but the China steel association says there is 300 million tonnes of surplus capacity. In copper, some 654,000 tonnes of production may be closed, which is insignificant when compared with the existing idle capacity of more than 7 million tonnes.