Source: Polaris Environmental Protection Network According to a February 7 announcement by the Ministry of Industry and Information Technology (MIIT), the ministry released an article titled 2017 Operation Status of the Iron and Steel Industry and Work Considerations for 2018. The article pointed out that in 2018, the steel industry must unswervingly cut overcapacity, strictly prevent new capacity additions, focus on promoting the optimization of industrial layout, transformation and upgrading, and standardized operation, so as to achieve sustainable and healthy development. The article emphasized the need to strictly guard against the resurgence of strip steel. A long-term mechanism for preventing the comeback of strip steel should be established and improved, and a tough stance of cracking down on any emerging cases immediately must be maintained. For key provinces (autonomous regions and municipalities directly under the Central Government) where strip steel production is prone to recur, the Inter-ministerial Joint Conference will organize special inspections in the first half of this year to prevent the resurgence of strip steel. The continuous upgrading of environmental protection policies will force steel enterprises to carry out environmental protection technological transformation, which is conducive to the sustainable development of the steel industry; it will also drive the relocation of steel production capacity from environmentally sensitive areas such as the Beijing-Tianjin-Hebei region to areas with greater environmental carrying capacity, which is beneficial to the optimization of the steel industry layout. Full Text as Follows 2017 Operation Status of the Iron and Steel Industry and Work Considerations for 2018 In 2017, the steel industry further promoted supply-side structural reform, achieving remarkable results in overcapacity reduction. Strip steel production was completely eliminated, enterprise efficiency improved significantly, and the industry maintained a stable and positive operation momentum. However, risks of strip steel resurgence still exist, signs of new capacity additions have gradually emerged, pressures such as industrial structure optimization and adjustment have become increasingly prominent, and the industry still faces many difficulties. In 2018, the steel industry must unswervingly cut overcapacity, strictly prevent new capacity additions, focus on promoting the optimization of industrial layout, transformation and upgrading, and standardized operation, so as to achieve sustainable and healthy development. I. Operation Status of the Steel Industry in 2017 (1) Overfulfilled overcapacity reduction tasks and completely eliminated strip steel 2017 was a crucial year for steel overcapacity reduction. The industry reduced crude steel capacity by more than 50 million tons throughout the year, exceeding the annual target. A total of 140 million tons of strip steel capacity was completely phased out, fundamentally reversing the phenomenon of "bad money driving out good money". This effectively improved the market environment, significantly standardized the import and export order, enhanced steel product quality, and boosted industry efficiency substantially. (2) Statistically recorded crude steel output hit a new high With the exit of strip steel capacity, compliant production capacity within the statistical scope began to release rapidly. In 2017, China's crude steel output reached 832 million tons, a year-on-year increase of 5.7%, hitting a record high. However, considering that a large amount of strip steel output was not included in the statistics, the actual crude steel output in 2017 would not be higher than that in 2016. (3) Steel exports decreased significantly In 2017, China's cumulative steel exports reached 75.43 million tons, a year-on-year decrease of 30.5%; cumulative steel imports stood at 13.30 million tons, a year-on-year increase of 0.6%. Export prices rose significantly: the full-year steel export value reached RMB 370 billion, a year-on-year increase of 3.1%; the average steel export price was RMB 4,905 per ton, a year-on-year increase of 48.4%. (4) Steel prices rose rapidly Driven by factors such as the in-depth advancement of steel overcapacity reduction, the complete elimination of strip steel, staggered production during the heating season, and the recovery of market demand, steel prices rose sharply in 2017. At the end of December, the China Steel Price Index (CSPI) stood at 121.8 points, an increase of 22.3 points or 22.4% compared with the beginning of the year. Among them, the long product price index rose from 97.6 points at the start of the year to 129.0 points, a year-on-year increase of 32.2%; the flat product price index climbed from 104.6 points to 117.4 points, a year-on-year increase of 12.2%. Among specific product varieties, the domestic rebar price stood at RMB 3,268 per ton at the beginning of the year, peaked at over RMB 5,000 per ton, and fell back to RMB 4,447 per ton at the end of the year, a year-on-year increase of 36.1%. (5) Enterprise efficiency improved significantly In 2017, the main business income of China's ferrous metal smelting and rolling processing industry reached RMB 67.4 trillion, a year-on-year increase of 22.4%; the total profit reached RMB 341.9 billion, an increase of RMB 218.9 billion or 177.8% year-on-year. In 2017, key large and medium-sized enterprises monitored by the China Iron and Steel Industry Association (CISA) achieved cumulative sales revenue of RMB 36.9 trillion, a year-on-year increase of 34.1%, and total profit of RMB 177.3 billion, a year-on-year increase of 613.6%. II. Existing Problems in Industry Operation (1) Growing pressure to prevent new capacity additions With the improvement of market conditions, some suspended enterprises have resumed production one after another, and enterprises' willingness to withdraw voluntarily has weakened, making the overcapacity reduction task more arduous. Driven by high profits, some regions and enterprises have recently had the urge to launch new steel smelting projects, with a tendency to exploit policy loopholes, leading to increasing pressure of capacity rebound. Strictly preventing new capacity additions will become the key to the smooth advancement of supply-side structural reform in the steel industry in 2018. (2) Rising pressure to prevent the resurgence of strip steel In 2017, strip steel capacity was completely eliminated under severe crackdowns. However, with the sharp rise in steel prices, the possibility of strip steel resurgence has increased. Recently, several cases of strip steel resurgence have occurred in provinces such as Heilongjiang and Jilin. The Inter-ministerial Joint Conference on Resolving Excess Capacity and Promoting Restructuring and Development in the Iron and Steel and Coal Industries (hereinafter referred to as the Inter-ministerial Joint Conference) has issued circulars to all regions regarding the investigation and handling of these cases. The issue of strip steel resurgence must arouse sufficient attention and be addressed with sustained efforts. (3) Urgent need to improve policies for the development of electric arc furnace (EAF) steelmaking After the concentrated elimination of strip steel, although blast furnace-converter (BF-BOF) long-process enterprises have increased their scrap steel utilization, there has still been a periodic surplus of scrap steel supply, leading to a substantial increase in scrap steel exports. In 2017, cumulative scrap steel exports reached 2.203 million tons, compared with only about 1,000 tons in 2016. To meet the future development needs of the steel industry, solve the problems existing in the development of EAF steelmaking, promote the rational layout of "long and short processes" in the steel industry, policies such as deepening the power system reform need to be improved and promoted urgently. (4) Increasing environmental protection pressure on steel enterprises The work plan for air pollution prevention and control in the Beijing-Tianjin-Hebei region and surrounding areas requires staggered production and suspension of steel enterprises during the heating season. Local governments and steel enterprises have attached great importance to air pollution prevention and control, adopting various forms of pollution control measures, which have exerted a far-reaching impact on steel enterprises in the region. Currently, the policy of a 50% production limit during the heating season has achieved remarkable results in improving air quality. In the long run, the continuous upgrading of environmental protection policies will force steel enterprises to carry out environmental protection technological transformation, which is conducive to the sustainable development of the steel industry; it will also drive the relocation of steel production capacity from environmentally sensitive areas such as the Beijing-Tianjin-Hebei region to areas with greater environmental carrying capacity, which is beneficial to the optimization of the steel industry layout. III. Work Considerations for 2018 (1) Implement targeted policies and unswervingly cut overcapacity Focus on overcapacity reduction in key regions, guide local governments to prioritize the disposal of "zombie enterprises" and elimination of inefficient capacity, and strive to complete the upper limit target of reducing 150 million tons of steel capacity during the 13th Five-Year Plan period ahead of schedule in 2018. Strictly control new capacity additions, guide all regions to conduct comprehensive self-inspections and rectifications on the work of controlling new capacity, strengthen supervision and inspection, strictly enforce the capacity replacement review, and prohibit any new steel capacity additions in any name. (2) Adopt multiple measures to strictly prevent the resurgence of strip steel Establish and improve a long-term mechanism for preventing the resurgence of strip steel, and always maintain a tough stance of cracking down on any emerging cases immediately. For key provinces (autonomous regions and municipalities directly under the Central Government) where strip steel production is prone to recur, the Inter-ministerial Joint Conference will organize special inspections in the first half of this year to prevent the resurgence of strip steel. Give full play to the role of negative warnings, intensify the investigation, punishment and accountability for illegal production and sales of strip steel, and ensure that every case is detected, investigated and publicized. (3) Strengthen research and rationally guide the development of EAF steelmaking Adopt targeted policies based on local conditions, and encourage existing BF-BOF long-process enterprises to transform into EAF enterprises. Give appropriate preferential treatment to the capacity replacement policy for new EAF projects in different regions, encourage small EAF enterprises to carry out joint restructuring and absorb the transferred capacity from overcapacity regions, and develop advanced-level EAF enterprises. Promote the revision of relevant policies to create a favorable policy environment for short-process EAF steelmaking. (4) Standardize operation and maintain stable market operation Carry out dynamic adjustment of standardized enterprises in the steel, coking and ferroalloy industries, and realize dynamic management of "entry and exit". Strengthen the monitoring and analysis of industry operation, further enhance investigation and research and guidance to local work in combination with steel overcapacity reduction, capacity replacement, staggered production during the heating season and other work, avoid sharp fluctuations in steel prices, and strive to maintain the stable operation of the industry. (5) Make active plans and promote the transformation and upgrading of the steel industry Strengthen the leading role of standards, explore the grading and classified management of steel products, focus on improving the consistency and stability of steel products, and promote the upgrading to the medium and high-end market. Establish and improve upstream and downstream cooperation mechanisms, and accelerate the industrialization and application of new steel materials. Actively promote intelligent manufacturing, take pilot demonstrations as the starting point, explore replicable experiences and practices, and increase the promotion efforts in the industry.