SHANGHAI -- China really is restructuring its steel industry.
The government is stressing that the industry has cut around 100 million tons of crude steel capacity during the past 18 months. The reduction is equivalent to Japan's annual steel-making capacity.
China has also declared that by the end of June all illegal plants producing steel products of inferior quality had been eradicated.
Earnings at major Chinese steelmakers and China's steel product markets all seem to be stabilizing.
A glut of Chinese steel, much produced with subsidies from local governments, has been blamed for falling prices and poor earnings at steelmakers around the world.
The Chinese government announced a plan in January 2016 to cut some 10%, or 100 million to 150 million tons, of crude steel capacity by 2020. The plan has moved forward, contrary to initial expectations that it would end up an empty slogan.
China achieved a capacity cut of 65 million tons mainly by closing idle mills in 2016. Although new facilities with a combined capacity of 20 million tons were established, the government cleared the first-year target of shedding 45 million tons of capacity.
By the end of May, capacity reductions totaled 42 million tons, or 80% of the target for 2017.
The problem of inferior-quality steel products, called detiaogang, has been seen as a test of how serious China is about structurally reforming its steel industry.
Inexpensive detiaogang, which is made merely by melting and rehardening iron and steel scrap, lacks strength but has been blamed for driving down steel product prices.
In March, this reporter made a journey to Jiangsu Huada Steel, in the northern part of Jiangsu Province, only to find the plant completely demolished and a vacant lot left behind. The company had long produced detiaogang, but the Jiangsu provincial government forced it to cease operations.
Annual production of detiaogang across China was estimated to be between 60 million and 80 million tons. The widespread availability of these products resulted in a steel glut, causing prices to fall and prompting Chinese steelmakers to dump their products overseas.
The Chinese government decided earlier this year to prohibit the production of detiaogang and set up a task force to crack down on the stuff. Now the government says it has effectively rooted out detiaogang production.
At the same time, the government has been stepping up infrastructure investment in various parts of the country in a bid to shore up economic activity. The drive is also boosting demand for steel.
Earnings at major Chinese steelmakers are improving thanks to the reduction of surplus capacity and increasing demand.
Baoshan Iron & Steel -- a listed subsidiary of China Baowu Steel Group, founded in 2016 through the merger of Baosteel Group and Wuhan Iron & Steel (Group) -- logged a net profit of 3.8 billion yuan ($560 million) in the January-March period, up 2.4 times from a year earlier. Anshan Iron and Steel Group swung into the black during the same quarter.
With the increase in domestic demand and reduced inventory levels, Chinese steelmakers are now less prone to dumping cut-rate steel on the global market. In the first five months of this year, steel exports from China decreased roughly by 25% from the corresponding period of 2016.
"We can expect a pickup in global steel prices thanks to structural reforms in China," said a representative of a Japanese steelmaker operating in China.
China is prioritizing economic stability ahead of the Chinese Communist Party's national congress this autumn. The conclave is held once every five years to make key decisions on leadership and other matters.
Infrastructure investment may decrease after the all-important powwow.