Since the supply-side structural reform was launched in the steel industry in 2016, the capacity reduction driven by administrative reforms has achieved remarkable results. As structural changes need to be observed over a longer time horizon, this section will focus on the overall results of capacity reduction through administrative reforms. Supply-side structural reform has yielded significant outcomes in overall capacity reduction. According to Xu Wenli, Director of the Steel Division of the Raw Materials Department of the Ministry of Industry and Information Technology, who revealed the data at the 2017 (6th) China Steel Raw Materials Market High-End Forum held on December 9, 2017, the steel industry's 2017 capacity reduction target of 50 million tons was completed ahead of schedule. Since 2016, the steel industry has fulfilled a cumulative capacity reduction target of over 115 million tons. Based on the 1.2 billion tons of crude steel capacity released by the National Bureau of Statistics in 2015, the capacity reduced through administrative reforms in China since 2016 has accounted for 9.58% of the original total capacity. Reference: the report 2018 China Steel Market Analysis Report - In-depth Industry Research and Development Prospect Forecast released by Guanyan Tianxia. The following shows the capacity and capacity utilization rate of China's steel industry from 2008 to 2017, with the 2017 capacity data estimated in our report 2018 Annual Investment Strategy for the Steel Industry: Capacity Reduction, Deleveraging, High Environmental Protection Pressure, and Mergers & Acquisitions Jointly Build a New Normal for the Steel Industry published on December 15, 2017. We can see that from 2008 to 2015, China's steel capacity maintained an expansion trend, rising from 660 million tons to 1.2 billion tons, which was accompanied by a decline in capacity utilization rate from 83.38% in 2010 to 66.99% in 2015. After the supply-side structural reform implemented since 2016, we estimate that China's steel capacity dropped to 1.144 billion tons in 2016 and 1.098 billion tons in 2017, with the capacity utilization rate increasing to 70.60% and 75.75% respectively. 

Chart: Crude Steel Output, Capacity and Capacity Utilization Rate (2008–2017) The campaign to eliminate strip steel has also made substantial progress. At the press conference held by the State Council Information Office on November 14, 2017, Liu Aihua, Spokesperson of the National Bureau of Statistics, stated that 140 million tons of strip steel capacity had been completely phased out. The elimination of strip steel has significantly benefited the compliant capacity within the statistical scope, and industry profits are being redistributed to compliant capacity through the process of strip steel clearance. As we analyzed in our report How to Track and Research the Steel Industry: Methods for Tracking Fundamentals and Financial Indicators and Indicator Construction released on February 28, 2017, the rectification of strip steel will lead to a rapid and substantial contraction on the steel supply side, which is generally reflected by the negative divergence between the growth rate of steel product output and that of crude steel output. Since 2017, driven by profit recovery, the year-on-year growth rate of compliant crude steel output within the statistical scope has increased significantly. The cumulative year-on-year growth rate of crude steel output in 2017 reached 5.70%, yet the actual supply growth in the steel product market was significantly lower than this rate, with the year-on-year growth rate of steel product output in 2017 standing at only 0.80%. In other words, against the backdrop of a strong profit recovery in the steel industry, although compliant steel mills have increased production and the compliant crude steel output within the statistical scope has risen substantially, thanks to the elimination of strip steel, the actual supply of steel products in the market has only increased slightly. This has optimized the overall supply-demand pattern, sustained profit prosperity, and enabled compliant steel mills to benefit from both profit recovery and output expansion. Thus, industry profits are being redistributed to compliant capacity through the process of strip steel clearance.

 Chart: Since 2017, the Growth Rate of Steel Product Output Has Shown a Negative Divergence Relative to That of Crude Steel Output Source: Compiled by Guanyan Tianxia. Please indicate the source when reprinting (ZTT).