Despite cutting its overcapacity, odds still stacked against world's biggest producer

China has made a significant contribution to global efforts to cut steel capacity, despite its own mammoth difficulties, experts say.

"The country has been actively cutting steel capacity to help solve the global oversupply problem, and its large and medium-sized steel companies are taking the lead," says Li Xinchuang, head of the China Metallurgical Planning and Research Institute.

Steel overcapacity is a worldwide problem. At present, the utilization rate of the world's steel capacity is about 66 percent, and that of China is 71 percent.

China is the world's biggest steel producer and exporter. Its crude steel production capacity stands at 1.13 billion metric tons, nearly half of the world's total.

During the 12th Five-Year Plan (2011-15), China cut about 90 million tons of crude steel capacity, with the capacity right now more than 1 billion tons. Many small-sized companies have gone bankrupt due to small utilization rates.

Even so, the country plans to cut crude steel capacity by another 100 million to 150 million tons over the next five years, according to the 13th Five-Year Plan (2016-20).

"The United States, Japan and European countries have spent more than 10 or 20 years solving the overcapacity issue in their steel sectors," Li says. "The scale of China's (steel capacity) reduction plan is much bigger than that of those countries, which means China is facing many more difficulties."

According to Statista, a statistics company in Hamburg, the average price of 1 metric ton of ore was $55 in 2015, down from the peak of $168 in 2011.

The slump in iron ore prices triggered the downfall in steel prices, according to Lu Xiaoming, a steel industry analyst with the China Economic Information Service.

"Although China produces nearly half of the world's steel, 88 percent of its products are consumed domestically. Its exports are not large enough to dominate international market prices," he says.

China's steel exports have been confronted with increasing protectionism from the European Union.

The European Commission decided on Aug 4 to impose duties ranging from 19.7 to 22.1 percent on cold rolled steel products imported from China, the second group of anti-dumping duties on Chinese steel products in a week.

"China's steel products account for less than 5 percent in EU countries, which is not going to have significant impact on the market," says Shen Danyang, a spokesman for the Chinese Ministry of Commerce.

He notes that the root cause for the difficulties in the EU steel industry is lack of growth momentum - and says that trade protectionism is going to hurt fair competition.

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