Chinese steelmaking capacity could slump through the coming two decades, one major mill executive says. The result could be an even more dominant position for his company, Baowu Iron and Steel, Kallanish notes.

"Chinese steel capacity could fall back to around 500 million tonnes/year in the future 20 years," estimates Baowu Group general manager Chen Derong. Chen also says Baowu’s steel industry restructuring fund has already been communicating with several potential acquisition targets. 

Baowu established a steel industry restructuring fund with US private equity company W.L. Ross & Co, China Merchants Finance Holding Co. and U.S.-China Green Fund with initial financing of CNY 40 billion-80 billion ($6.11 billion-12.22 billion). The main goal is to remove overcapacity and zombie companies, speed up mergers and acquisitions, increase industry concentration and promote international capacity cooperation.

Baowu and its investment fund could eventually control as much as 20% of the Chinese steel industry, Chen estimates. China plans to concentrate 60% of its industry in the hands of the ten largest steelmakers by 2025, but campaigns to improve concentration have had very little success in the past.

According to Premier Li Keqiang, China aims to eliminate 140m t/y of steel capacity over 2016-2020, but last year China reported 808.37mt of crude steel output, up 1.2% year-on-year.  

Kallanish estimates Chinese steel capacity by the end of 2016 was still over 1 billion tonnes/year. If it falls to 500m t/y within 20 years, that would imply a very significant slump in both steel and raw materials demand.