China's capacity reduction takes effect: spokesman

A worker at a steel depot in Qingdao Port, Shandong province. [Photo provided to China Daily]

BEIJING - Financial conditions of steel and coal companies have improved thanks to government-led capacity reduction measures, an official said on Thursday.

Crude steel production fell 1.4 percent year on year in the first five months of 2016 and coal production of large miners dropped 8.4 percent, said Zhao Chenxin, spokesperson for the National Development and Reform Commission (NDRC) at a news briefing.

As a result, the composite steel price index increased by 11 points in the first half of 2016 to 67.83 points at the beginning of July. The price of a popular coal product rose by 30 yuan ($4.5) in the first six months to 400 yuan per ton, Zhao added.

China's producer price index (PPI), an indicator of industrial product prices, slid 2.6 percent year on year in June, compared with a 2.8-percent decrease in May.

Despite consecutive improvements in the last six months, PPI had remained in negative territory for 52 months as China's economic slowdown and industrial overcapacity weighed on prices.

China aims to cut around 45 million tons of crude steel capacity and more than 250 million tons of coal capacity in 2016.

The spokesperson said authorities have effectively controlled new capacity, but he did not disclose how much had been slashed.

Zhao admitted that rebounding prices will add pressure to capacity reduction as some closed steel and coal enterprises want to resume production.

"We will ensure the completion of the annual task," he said, adding that local officials will be held accountable.