China, which accounts for half the world's steel production, has a total capacity of 1.1 billion metric tons. It has announced plans to eliminate 100-150 million metric tons of annual production over the next five years, but cutting capacity has so far done little to rein in output and exports.
Last year, it said it had far exceeded its initial target to cut capacity by 45 million metric tons, recording cuts of around 85 million metric tons.
But the report says that 73 per cent of the announced cuts in capacity were already idle - in other words the plants were not operating. Only 23 million metric tons of cut capacity involved shutting down production plants that were operating.
At the same time, some 54 million metric tons of capacity were restarted, and 12 million metric tons of new operating capacity came online.
That left China showing a net increase in operating capacity of 36.5 million metric tons last year, a figure that is consistent with a 3 per cent increase in steel production in the second half of last year.
It is also consistent with evidence of a deterioration in the air quality in Beijing in the second half of last year - the steel industry is a heavy consumer of coal and contributor to air pollution, and most of the restarted capacity came in the industrial provinces near the capital, Shanxi, Hebei and Tianjin.
"Cutting already idle capacity is not enough to win the battle to tame the steel industry and the central government's much-touted 'war on air pollution'," said Myllyvirta.