1 China's Crude Steel Output Reached a Record High; BF Operation Rate Continued to Rise

According to National Bureau of Statistics, from January to November 2018, China produced crude steel of 857.37 million tons, pig iron of 707.85 million tons and steel output of 1.01 billion tons, up 6.7%, 2.4% and 8.3%, respectively on a yearly basis. It is expected that China's crude steel and pig iron output will reach 930 million tons and 770 million tons in 2018, both hitting a record high.

There are two main reasons for the rapid growth of China’s crude steel and pig iron output. Firstly, market competition developed healthily after China banned substandard steel capacity. Legitimate steel enterprises accelerated to release their capacity, which advanced blast furnace operating rate to remain at a high level. According to SteelHome survey, China’s blast furnace rebounded rapidly with the end of 2017-2018 heating season. The BF operating rate maintained 85-90% by the middle December, 2018, Secondly, steel mills increased steel outputs significantly due to the high profit. Daily output of crude steel continued to break the record, with an average daily output of 2.695 million tons in September, a record high.

2 Steel Enterprises Performance Improved; Profitability Hit a 26-year High

China’s steel market price run at a high level in 2018, benefiting from production restriction for environmental protection and policies for strengthening infrastructural construction. It is understood that flat steel was stronger than long steel in the first half of 2018, and in the second half of 2018, long steel was stronger.

Steel industry performance improved. According to statistics for China Iron and Steel Industry, CISA member steel enterprises totaled profits of 260.4 billion yuan during January to October 2018, with a profit margin of 7.59%, 2.29% higher than that of 2017. It is estimated that the annual profit will reach about 290 million yuan, which is the highest in the past 26 years for steel industry.

3 China Basically Completed Target of Addressing Steel Capacity of 150 Mlnts Two Years Ahead of Schedule

On January 30, 2018, Xin Guobin, Vice Minister of Ministry of Industry and Information Technology, said that China should firmly focus on the work of steel capacity reduction, ensure to eliminate backward capacity, and strive to reduce crude steel capacity of 150 million tons during the "13th five-year plan"

On March 5, 2018, Prime Minister Li Keqiang proposed in the government work report that China will continue to adopt market-based and law-based approaches, strictly implement laws and regulations on environmental protection, quality and safety, eliminate excess production capacity, eliminate backward production capacity, and reduce steel production capacity by about 30 million tons this year.

Chi Jingdong, Vice President of the China Iron and Steel Association, said on December 5 that Chinese steel industry had cut steel production capacity by nearly 150 million tons and banned 140 million tons of substandard steel. China has basically completed steel capacity reduction.

According to statistics from SteelHome, as of December 20, China has reduced its iron-making capacity by 15.31 million tons and steelmaking capacity by 23.35 million tons. Prior to that, the country eliminated its excess capacity by more than 120 million tons in 2016 and 2017. Up to now, China has basically completed the task of addressing steel overcapacity of 150 million tons during the 13th five-year plan two years ahead of schedule.

4 The Ministry of Industry and Information Technology Issued a New Version of Capacity Replacement Measures; Steel Capacity Replacement Continued to Advance

The Ministry of Industry and Information Technology (MIIT) announced a new capacity replacement policy on December 31, 2017. The new capacity replacement policy makes clear that the capacity that can be used for replacement must meet two requirements. Meanwhile, in environmentally sensitive areas of the Beijing-Tianjin-Hebei region, the Yangtze River Delta and the Pearl River Delta, steel plants should remove at least 1.25 tons of outdated capacity for every 1 ton of new capacity.

In 2018, China progressed production capacity replacement in steel industry steadily. As per statistics from SteelHome website, as of December 24, 2018, 52 steel mills in 17 provinces in China have announced their capacity replacement projects, involving a total of 86.09 million tons of ironmaking capacity and 85.88 million tons of steelmaking capacity before replacement. After capacity replacement, ironmaking and steelmaking capacity will total 82.06 million tons and 80.85million tons. If the capacity replacement is fully implemented, China will eliminate 4.02 million tons of iron-making capacity and 5.03 million tons of steelmaking capacity.

5 MIIT Adjusted Legitimate Steel Enterprises List Regularly

Since 2013, Ministry of Industry and Information Technology has organized and carried out standardized management of steel industry, and announced 304 legitimate enterprises in three batches (the first batch of 45 enterprises, the second batch of 113 enterprises and the third batch of 147 enterprises), so as to eliminate the blind spots of industrial management and lay a good working foundation for the on-going and post-event supervision.

Up to now, MIIT has issued notices on dynamic adjustment of steel enterprises list in April 2017 and March 2018 in two batches. A total of 48 enterprises have been revoked, 52 enterprises have been required to rectify, 24 enterprises' names and 47 enterprises' equipment have been changed, and the total number of steel enterprises in the list has been reduced from 304 to 256. On December 17, 2018, MIIT once again published the list of legitimate steel enterprises. Among them, 12 steel enterprises were newly added, 11 enterprises were revoked, 17 enterprises were required for rectification, 27 enterprises changed their equipment and 7 enterprises changed their names. If there is no objection to the public announcement, MIIT will adjust the number of legitimate steel enterprises from 256 to 257.

6 Hebei, Jiangsu and Shandong Province adjusted Industrial Layout; Push forward Relocation of Steel Mills along the Rivers and Coast

Hebei, Jiangsu and Shandong Provinces have issued documents in succession to promote the adjustment of the layout of the steel industry, with the focus on shifting production capacity along the coast and rivers, involving the relocation of many steel mills.

According to Steel Capacity Reduction Work Plan of Hebei Province (2018-2020), in addition to six steel enterprises (HBIS Shisteel, HBIS Xuansteel, Guofeng Steel, Taihang Steel, Jinan Steel and Shouqin Steel) confirmed to be relocated, there are nine steel mills located in the urban area, including Tangshan Steel, Handan Steel, Chengde Steel, Xingtai Steel, Longhai Steel, Wu’ an Wen’ an Steel, Wu’ an Xinjin Steel, Jianlong Steel and Shengfeng Steel. For these enterprises which cannot move will be gradually shut down or transformed. For these enterprises with good conditions will be moved to areas along the rivers and coast.

Jiangsu province issued Implementation Opinions on Accelerating the High-quality Development of the Transformation and Upgrading of the Chemical, Steel, Coal and Power Industries, proposing to make overall planning and steadily implement strategic adjustment of the layout of the steel industry through merger, reorganization, capacity replacement and other market-oriented measures.

Shandong province has issued a notice on implementing plans to accelerate the high-quality development of seven energy-intensive industries, proposing to gradually transfer the province's steel production capacity to the coastal bases of "Rizhao-Linzi" and "Laiwu-Taian" inland bases.

7 The United States 232 Investigation Imposed Punitive Tariffs on Steel and Aluminum; Many Countries Took Countermeasures

On February 16, 2018, the US Department of Commerce website published a report on the 232 National Security Survey of Imported Steel and Aluminum Products. According to the law, President Trump will make a decision on the recommendations of the Steel 232 investigation before April 11, 2018, and decide on the recommendations of the Aluminum 232 investigation before April 19, 2018.

On February 17, 2018, Wang Hejun, Director of the Trade Remedy and Investigation Bureau of the Ministry of Commerce of the People's Republic of China, said that the US investigation conclusion "has no basis and is completely inconsistent with the facts." If the final decision of the United States affects the interests of the Chinese side, China will certainly take the necessary measures to safeguard its legitimate rights.

On March 8, 2018, US President Trump officially signed to impose 25% and 10% tariffs on imported steel and aluminum 15 days later. On March 23, 2018, the US 232 investigation and punishment measures for steel and aluminum tariffs came into effect.

Since then, a number of countries or regions have initiated counter-measures against the US 232 investigation. On July 16, the US government filed a complaint with the World Trade Organization (WTO) on the retaliatory tariffs imposed by China, the European Union, Canada, Mexico and Turkey on its steel and aluminum tariffs.

On October 29, 2018, China, the European Union, Canada, Mexico, Norway, Russia and Turkey, seven members of the world trade organization (WTO), called for the establishment of a panel of experts to examine whether the measures violate WTO rules. At a meeting on November 21, the WTO agreed to set up a panel of experts to review steel and aluminum tariffs announced by the United States in March to determine whether they violate WTO rules.

8 The Blue Sky Defense War Fully Launched; Environmental Protection Strengthened; Areas of Staggering Peak Production during Autumn and Winter Season Expanded

At present, China's atmospheric environment is still grim, and air pollutant emissions are still in the forefront of the world. The 19th National Congress of the Communist Party of China put forward the battle for pollution prevention and control as one of the three major battles to build a well-off society in an all-round way. It requires continuous implementation of air pollution prevention and control actions. Win the blue sky defense war.

On June 27, 2018, the State Council issued a three-year action plan to win the Blue Sky Defense War. The action plan requires that the air pollution prevention and control actions should be continued with the focus on the Beijing-Tianjin-Hebei region and the surrounding areas, the Yangtze River Delta region, and the Fen-Wei Plains. Comprehensively use economic, technical and necessary administrative means to resolutely win the blue sky defense war. New steel, coking, electrolytic aluminum, casting and other production capacity are strictly prohibited in key areas.

The production restriction area in autumn and winter of 2018-2019 was further expanded from last year's Beijing-Tianjin-Hebei and surrounding “2+26” cities to the Yangtze River Delta and Fen-Wei Plains. Compared with last year, the production restriction of steel enterprises has changed from a “one-size-fits-all” measure to a differential measure. The ironmaking capacity involved has increased from 320 million tons last year to about 510 million tons, accounting for more than 50% of the national ironmaking capacity.

9 New National Standard for Hot-rolled Ribbed Bar Took Effect on 1 November 2018

New national standard for hot-rolled ribbed bars released on 6 February 2018 will be implemented on 1 November 2018. This new standard bans ribbed bars which are through water cooling process from circulating in markets. To meet requirement of new standard; sufficient alloy elements should be added. There are three means: a) to add vanadium; b) to add niobium; c) to add silicomanganese and slightly through water.

Since the end of 2012, China has implemented high-strength steel bars. In the production process, steel mills can increase the strength of steel bars by adding vanadium alloys, or they can produce high-strength steel bars through the “water cooling process” to reduce production costs and increase economic benefits. However, the steel bars produced by the “water cooling process” are prone to rust and the strength is easily depleted, and the effect in the construction concrete cannot be compared with the former. After the implementation of the new standard for rebar, due to the addition of metallographic inspection and other regulations, the rebar produced by the “water cooling process” process will gradually lose market.

10 China's Steel Industry Responded to the US 337 Investigation All Won

China Iron and Steel Industry Association organized relevant steel companies to respond to US 337 Investigation positively. After 20 months of arduous efforts, Chinese steel industry and steel companies won the 337 investigation. In this regard, Liu Zhenjiang, secretary of the Party Committee and Secretary of the China Iron and Steel Association, said that the success of China Steel in the US 337 investigation is a major event worthy of entering the history of China's steel industry. This is a typical case of the Chinese trade in international trade lawsuits.