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Overcapacity, oversupply weigh on China steel

Keywords: Tags  steel, steel overcapacity, China Iron and Steel Association, Cisa, Zhang Changfu, National Bureau of Statistics

SHANGHAI — Steel overcapacity and oversupply in China, the world’s largest steelmaker, remained the most pressing challenge for the sector in 2013, with the gap between supply and demand still disturbingly wide.

China’s crude steel output could total 782 million tonnes in 2013, based on a production volume of 715 million tonnes for the first 11 months, Zhang Changfu, vice chairman and secretary general of the China Iron and Steel Association (Cisa), said at a recent conference in Shanghai. This is up 8 percent from final 2012 crude steel output of 724 million tonnes.

But actual crude steel output is likely to be much higher, as many small unlicensed mills aren’t included in data from the National Bureau of Statistics (NBS), Zhang said.

China’s apparent crude steel consumption will reach 730 million tonnes in 2013, based on an 11-month total of 668 million tonnes, he forecast. This is up from 632 million tonnes in 2012.

At the start of this year, the industry body predicted that 2013 steel demand in China would grow 3.1 percent vs. 2.5 percent in 2012.

But the growth rate in demand is quite slow compared with the estimated annual growth of 8 to 9 percent in output, market observers said.

With Beijing targeting steady economic growth, large-scale incentives to boost steel demand were absent in 2013.

China’s steel market was in a downtrend for most of the year, with prices falling sharply since the start of the year. A decline in output due to stricter environmental inspection helped prices to resume an upward trend in early November, and since then they have been hovering around 3,500 yuan ($572) per tonne with small fluctuations.

As a result, China’s steelmakers have continued to struggle for profit.

Between January and November, the industry reached a profit of only 4.2 yuan (70 cents) per tonne of steelmaking, according to Cisa data.

Capacity control in China has been a hot topic since the start of the year, with the government renewing efforts to reduce pollution from heavy industry due to the poor air quality in major cities.

China’s State Council outlined a string of measures to curb air pollution in mid-June. Any projects that fail the government’s environmental impact assessment will be denied access to land and bank loans.

China’s steelmaking hub of Hebei province aims to cut 60 million tonnes of steel capacity by the end of 2017.

In mid-October, the State Council released guidelines on tackling overcapacity in five industries, including steel. Some 15 million tonnes of annual iron production capacity and 15 million tonnes of steel capacity are required to be phased out by the end of 2015. This is in addition to the country’s earlier target for 2011-15 of 48 million tonnes for steel and iron production, respectively.

Beijing also urged greater consolidation in major steelmaking provinces, including Shandong, Hebei, Liaoning, Jiangsu, Shanxi and Jiangxi, aiming to cut more than 80 million tonnes of steel capacity in those regions over the next five years.

However, most market participants believe the efforts fall far short of what’s needed to effectively tackle China’s overcapacity problem.

With China’s existing crude steel capacity at more than 1 billion tonnes, there is still a long way to go, they said.

A version of this article was first published by AMM sister publication Steel First.

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