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China 2015 power, steel output drop for first time in decades

: China's output of electric power and steel fell for the first time in decades in 2015, while coal production dropped for a second year in row, illustrating how a slowing economy and shift to consumer­led growth is hurting industrial consumers.

China's economy grew at its weakest pace in a quarter of a century in 2015 and efforts to restructure have not only slashed demand but also exposed massive overcapacity in industrial sectors such as coal, steel and power. Only crude oil escaped the downturn, with refinery throughput hitting a new record in December and rising 3.8 per cent to 10.44 million barrels per day in the year, data from the National Bureau of Statistics showed on Tuesday.

"Because steel mills are cutting production, it cuts demand for coal and power, and coal is also hit by falling power and cement demand. It is going to be really bad for the next five years," said Xu Zhongbo, a steel industry consultant. China generated 5.618 trillion kilowatt­hours (kWh) of power in 2015, down 0.2 per cent from the previous year, the data showed, the first annual decline since 1968, when the country's economy was rocked by the turmoil of the Cultural Revolution.

"China's economic growth has decoupled from coal­fired power generation, and the increase in the service industry as a share of China's GDP has also slowed demand," said Yang Fuqiang, a senior researcher at the Natural Resources Defense Council. Yang said he expected the sector to grow at a much slower pace until 2050 as China embarks on "energy transition", and with a thermal power capacity surplus already estimated at around 200 gigawatts, China needed to stop approving new plants.

"Too Many Apartments" Crude steel production dropped 2.3 per cent to 803.8 million tonnes, the first yearly fall since 1981, with the entire sector sapped by weak demand and a colossal supply glut. Around half of China's steel mills are making losses and many are struggling to exit from a sector with a capacity surplus of around 400 million tonnes a year, half of total production.

A slowdown in construction also hurt the energy intensive cement industry, slashing output by 4.9 per cent in 2015 and creating further knock­on effects for coal and power. "Steel production will continue decreasing this year, especially construction steel ­ there are just too many apartments and many cities just don't need to build anymore," said Xu.

With coal output declining 3.5 per cent in 2015, the second annual fall in a row, pressure on the sector is expected to persist into 2016, also hit by Beijing's efforts to encourage cleaner forms of energy. China is also struggling to tackle a capacity surplus amounting to around 2 billion tonnes a year. As China fights pollution, coal­fired power sources have been affected disproportionately by the slowdown, with a huge power capacity surplus allowing grids to give priority to cleaner sources of energy, including hydropower.

SOurce:EconomicTimes