In 2017, the steel industry deepened its structural reform on the supply side, achieving significant results in capacity reduction. "Strip steel" was completely eliminated, corporate profitability improved markedly, and the industry’s operations showed steady improvement amid overall stability. However, the risk of "strip steel" making a comeback still remains; signs of new capacity expansion are gradually emerging, and pressures related to optimizing and adjusting the industrial structure are becoming increasingly prominent. The industry continues to face numerous challenges. In 2018, the steel industry must remain steadfast in reducing excess capacity, rigorously prevent the emergence of new capacity, and focus on promoting optimization of industrial layout, transformation and upgrading, and standardized management, thereby achieving sustainable and healthy development.

　　I. Operating Performance of the Steel Industry in 2017

　　(1) The task of capacity reduction was overfulfilled, and “strip steel” production was completely banned. 2017 was a critical year for steel capacity reduction. Throughout the year, more than 50 million tons of crude steel capacity were eliminated, 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,” effectively improving the market environment, significantly standardizing import and export order, markedly enhancing steel quality, and substantially boosting industry profitability.

　　(2) Statistically reported crude steel production reached a new high. As capacity for “strip steel” (illegal, substandard steel) was phased out, compliant capacity began to be rapidly released. In 2017, China’s crude steel production totaled 832 million tons, an increase of 5.7% year-on-year, reaching the highest level in history. However, given that a substantial portion of “strip steel” production was not included in official statistics, actual crude steel production in 2017 likely did not exceed the 2016 level.

　　(3) Steel exports declined significantly. In 2017, China’s cumulative steel exports totaled 75.43 million tons, down 30.5% year-on-year; cumulative steel imports reached 13.30 million tons, up 0.6% year-on-year. Export prices rose markedly: the total value of steel exports for the year was 370 billion yuan, an increase of 3.1% over the previous year; the average export price of steel was 4,905 yuan per ton, up 48.4% year-on-year.

　　(4) Steel prices rose relatively rapidly. Influenced by factors such as the deepening efforts to reduce steel overcapacity, the comprehensive elimination of “strip steel” production, staggered production schedules during the heating season, and a rebound in market demand, steel prices surged significantly in 2017. At the end of December, China’s steel price index stood at 121.8 points, up 22.3 points from the beginning of the year—a rise of 22.4%. Among these, the long-products price index climbed from 97.6 points at the start of the year to 129.0 points, representing an increase of 32.2%; while the sheet-products price index rose from 104.6 points at the beginning of the year to 117.4 points, reflecting a growth of 12.2%. By specific product category, domestic rebar prices started the year at 3,268 yuan per ton, peaking above 5,000 yuan per ton before falling back to 4,447 yuan per ton by year-end—an increase of 36.1% over the previous year.

　　(5) Corporate performance has significantly improved. In 2017, China’s ferrous metal smelting and rolling processing industry achieved main business revenue of 6.74 trillion yuan, a year-on-year increase of 22.4%. Its profits reached 341.9 billion yuan, an increase of 218.9 billion yuan over the same period last year, representing a year-on-year growth of 177.8%. In 2017, key large and medium-sized enterprises monitored by the China Iron and Steel Association accumulated sales revenue of 3.69 trillion yuan, up 34.1% year-on-year, and realized profits of 177.3 billion yuan, up 613.6% year-on-year.

　　II. Issues Existing in Industry Operations

　　(1) The pressure to prevent the addition of new production capacity is mounting. As market conditions improve, some previously shut-down enterprises are gradually resuming production, and companies’ willingness to proactively exit the market has weakened, making the task of reducing overcapacity increasingly challenging. Driven by high profits, some regions and enterprises have recently shown renewed enthusiasm for launching new steel-smelting projects, showing a tendency to skirt around existing policies, thereby increasing the risk of a rebound in capacity. Strictly preventing the addition of new capacity will be the key to ensuring the smooth advancement of supply-side structural reform in the steel industry in 2018.

　　(2) The pressure to prevent the resurgence of “di tiao gang” is on the rise. In 2017, under vigorous crackdown measures, the production capacity of “di tiao gang” was completely eliminated. However, as steel prices have surged significantly, the likelihood of “di tiao gang” making a comeback has increased. Recently, several cases of the resurgence of “di tiao gang” have already occurred in provinces such as Heilongjiang and Jilin. The Inter-Ministerial Joint Conference on Resolving Overcapacity and Promoting the Recovery and Development of the Iron and Steel and Coal Industries (hereinafter referred to as the Inter-Ministerial Joint Conference) has issued a notice to various regions based on its investigation into these cases. The issue of the resurgence of “di tiao gang” must receive sufficient attention and be tackled persistently and continuously.

　　(3) The development of short-process steelmaking urgently requires policy adjustments. Although, following the concentrated crackdown on “strip steel,” blast-furnace-to-converter long-process enterprises have increased their use of scrap steel, a temporary oversupply of scrap steel has still emerged. As a result, scrap steel exports have surged—cumulative exports reached 2.203 million tons in 2017, compared to only about 1,000 tons in 2016. To meet the future needs of the steel industry, address existing challenges in the development of short-process steelmaking, promote a rational layout of both long- and short-process steelmaking, and deepen reforms of the power sector, it is imperative that relevant policies be streamlined and advanced without delay.

　　(Four) Environmental protection pressures on steel enterprises continue to mount. The Work Plan for Air Pollution Prevention in the Beijing-Tianjin-Hebei Region and Surrounding Areas requires the steel industry to stagger production and temporarily halt or reduce output during peak pollution periods. Local governments and steel enterprises have attached great importance to air pollution prevention efforts and have adopted various forms of pollution control measures, profoundly impacting steel enterprises within the region. Currently, the policy of limiting production by 50% during the heating season has yielded significant improvements in air quality. In the long term, the continuous tightening of environmental protection policies will compel steel enterprises to carry out environmentally friendly technological upgrades, thereby promoting the sustainable development of the steel industry. Moreover, it will also drive the relocation of steel production capacity from environmentally sensitive regions such as Beijing-Tianjin-Hebei to areas with greater environmental carrying capacity, thus facilitating the optimization of the steel industry’s spatial layout.

　　III. Considerations for 2018 Work

　　(1) Implement targeted measures and unswervingly reduce overcapacity. Focus on key regions to reduce capacity, guiding localities to prioritize the disposal of “zombie enterprises” and the elimination of inefficient capacity, with the aim of achieving ahead of schedule by 2018 the upper limit target of 150 million tons of steel capacity reduction set forth in the 13th Five-Year Plan. Strictly control new capacity additions, guiding all regions to conduct comprehensive self-inspections and self-corrections regarding the strict control of new capacity, intensifying supervision and inspection efforts, rigorously scrutinizing capacity replacement projects, and firmly prohibiting any form of new steel capacity expansion under any pretext.

　　(2) Adopt multiple measures to strictly prevent the resurgence of “di tiao gang.” Establish and improve a long-term mechanism for preventing the re-emergence of “di tiao gang,” and maintain a high-pressure stance of cracking down on such activities whenever they are detected. In key provinces (autonomous regions and municipalities) where “di tiao gang” is particularly prevalent, the inter-ministerial joint conference will organize special inspections in the first half of this year to prevent its resurgence. Fully leverage the deterrent effect of negative publicity; intensify investigations and hold accountable those involved in the illegal production and sale of “di tiao gang,” ensuring that every case discovered is thoroughly investigated, dealt with, and publicly reported.

　　(3) Strengthen research and provide rational guidance for the development of electric arc furnace (EAF) steelmaking. Adopt tailored strategies suited to local conditions and categorized approaches, encouraging existing blast-furnace-converter long-process enterprises to transition into EAF-based operations. Give appropriate preference in capacity replacement policies to newly established EAF projects in different regions, and encourage small-scale EAF enterprises to merge and restructure or take over excess capacity transferred from regions with surplus production. Promote the development of advanced-level EAF enterprises. Drive revisions to relevant policies to create a favorable policy environment for short-process EAF steelmaking.

　　(4) Standardize operations and maintain stable market functioning. Carry out dynamic adjustments to the list of enterprises that meet industry standards in the steel, coking, and ferroalloy sectors, implementing a “both entry and exit” dynamic management approach. Strengthen monitoring and analysis of industry operations, and in conjunction with efforts such as capacity reduction in the steel sector, capacity replacement, and staggered production during the heating season, further enhance investigation and research as well as guidance for local work. This will help prevent large fluctuations in steel prices and strive to ensure stable operation of the industry.

　　(5) Actively plan and promote the transformation and upgrading of the steel industry. Strengthen standard-led initiatives, explore tiered and categorized management of steel products, and focus on enhancing the consistency and stability of steel products to drive the industry toward the mid- to high-end segment. Establish and improve cooperation mechanisms across the upstream and downstream sectors, and accelerate the industrial application of new steel materials. Vigorously advance intelligent manufacturing, using pilot demonstrations as a key driver to identify replicable best practices and experiences, and step up efforts to promote these approaches throughout the industry.