X Close

World

Published: Thursday March 6, 2014 MYT 3:30:03 PM
Updated: Thursday March 6, 2014 MYT 3:31:22 PM

China steel output near peak, say executives, in bad news for miners

BEIJING (Reuters) - Chinese steel output, which hit 779 million tonnes last year, is now close to its peak, with the market weakening and the government now determined to tackle a capacity glut responsible for mounting debts and heavy pollution, executives said.

Big miners like Rio Tinto, BHP Billiton and Vale have banked on continued growth in steel demand from China, which buys around two-thirds of the world's seaborne iron ore to feed a steel sector responsible for nearly half of the world's total output.

But the steel industry has borne the brunt of an economic slowdown as well as a concerted effort to tackle smog, and Zhang Wuzong, delegate at the National People's Congress (NPC) and chairman of private steelmaker Shandong Shiheng Special Steel said there was no room for further expansion.

"You can basically say that Chinese steel output has reached a peak," he told Reuters.

Deng Qilin, chairman of Wuhan Iron and Steel (Wugang), China's fourth biggest steel producer, and an NPC delegate, also said on Thursday that capacity was now more than enough, with supply heavily outstripping demand and failing mills under pressure from both the government and the market.

"I can tell you that the steel industry, globally and in China, is facing a big, big imbalance of supply and demand - it is facing serious overcapacity and if we don't control it the industry at home and overseas will fall further into a deep winter," he said.

"Expanding further is meaningless - if you are making losses, having more capacity will lead to even more losses."

Deng said the bigger steel firms, including Wugang, have been determined since the 2008 global financial crisis to end their obsession with expansion and focus instead on improving competitiveness. Better government regulation, tougher pollution controls and a less forgiving market will also help stop the "disorderly" expansion of smaller, private players.

"All the measures to eliminate capacity and control output are already in place," he said. "I think it will take around five years or more."

AT A PEAK?

Iron ore suppliers attending an industry conference in Beijing last week said they remained confident in the potential for further growth in China's steel sector, with David Joyce, Rio Tinto's managing director for project development, saying it "is still a long way from peaking".

Despite all the talk of crisis in the sector, crude steel production is still expected to grow by around 3 percent this year, down from 7.54 percent in 2013, and the top five global iron ore producers are expected to raise total supply capacity by 126 million tonnes this year.

But Jiang Kejun, senior researcher at the Energy Research Institute, a government think-tank, said last month that 650 million tonnes of annual steel production would be more than enough to meet domestic demand in the coming years. He said production would fall to 610 million tonnes by 2020, 22 percent lower than in 2013, and would then decline steadily thereafter.

Li Xinchuang, vice-secretary general of the China Iron and Steel Association, speaking last week, said such a rapid decline was unlikely, but he said China's total steel output would peak at about 850 million tonnes. With total production already expected to rise to 810 million tonnes this year, that would allow little room for further growth.

A peaking of Chinese steel output could be beneficial for rival steelmakers such as Japan's Nippon Steel & Sumitomo Metal Corp who have been hurt by China's capacity growth.

Zhang of Shiheng Special Steel said that it was hard to put a specific figure on China's peak steel production, but even relatively high economic growth would no longer be a big driver of steel demand.

"If the rate of economic growth can be adjusted properly, it can be sustained, but it won't be growth in steel mills, or growth in polluting enterprises," he said.

(Additional reporting by Kathy Chen; Editing by Muralikumar Anantharaman)

advertisement

  1. Bank robber shot dead by guard
  2. Hello Kitty is actually a girl, not a cat
  3. MasterChef UK winner slams Australian news portal over misuse of picture in MAS flight
  4. Sex addict Malaysian doctor deported, Daily Telegraph reports
  5. Test water heater circuit breakers
  6. Illegal food stalls near Utar unsightly and pose a danger to the public
  7. PKR and DAP accused of giving Ruler an ultimatum by proposing only one name
  8. Selangor MB crisis: Palace sets Sept 3 deadline for submission of names
  9. Najib: Malaysia strongly condemns Islamic State militants
  10. Semi-nude Ipoh wedding models fined RM400

advertisement

advertisement