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China working on plans to resolve steel overcapacity

China is working on plans to address the severe supply glut in the country’s steel sector, sources reported, citing a government official.
The plans are to improve the sector's competitiveness by eliminating obsolete capacity, upgrading production lines and offering support to combat excess capacity, said an official with the China Iron and Steel Association (CISA).
The new policies will make it harder for companies in industries with excess capacity to obtain land, funding or environmental certifications, according to the official.
Chinese steel producers have been witnessing narrowing profit margins in the first half of the year. Major steel firms made an aggregate first-half profit of 2.27 billion yuan ($370 million), but they posted a combined loss of 699 million yuan in June, the first month this year that the entire industry was in the red.
Furthermore, the industry actually recorded an operating loss during the first half, with the shortfall offset by 4.3 billion yuan in investment proceeds and 3.8 billion yuan from non-core businesses.
In addressing the supply glut of the steel industry, the CISA also called for its member companies, especially large ones, to increase their buying volumes on the nation's iron ore trading platform, which would give the mills a bigger say in the world market.
In the first half year, steel prices had been on a downtrend since February. As of June 30, steel prices were down 6.45% from early January and down 14.69% from a year earlier.
Low steel prices and high production costs are the major causes for steel makers' thinner profit margins.

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