China's steel industry is facing severe excessive capacity, with any recovery in 2009 hinging on the strengthened inefficient capacity cut and reducing costs in raw materials costs - so say experts at a recent conference organised by the China Iron And Steel Association.
Latest figures from CISA put China's crude steel production capacity at 610 million tonnes by the end of last year, with that figure increaseing to 660 million tonnes with capacity under construction.
Compared with huge capacity, consumption last year was 500 million tonnes, with export of 59.18 million tonnes. With much of the new capacity coming on stream by yh middle of this year this will further exaggerate the already excess flat products capacity in the second half of the year.
China's steelmakers have been losing money since last October, with losses of CNY 5.84 billion in October, CNY 12.8 billion in November and CNY 29.1 billion in December. This compares with a net profit of CNY 17.8 billion in June. The combined loss in last quarter was CNY 47.6 billion.
Mr Zhang Xiaogang director of CISA attributed the operating loss to surging raw materials prices and aslackening demand caused by the global economic slowdown. Surging costs for raw materials last year have sent steelmaking pig iron's cost 51.62% higher than a year ago. He said that “Low steel markets have worsened in the new year. 2009 to be the most difficult year for China's steel industry as well as its macro economy in light of the lower global economic growth expectations, further withering international steel market, the emerging trade protectionism and the slumping China's steel export.”
Mr Chi Jindong, deputy director of the steel association, said according to CISA, that China produced 500 million tonnes of crude steel last year up 5.59 million tonnes from a year ago; with apparent consumption at 450 million tonnes, up by 12.71 million tonnes. Crude steel consumption is set to drop in 2009 to 416 - 438 million tonnes even with Beijing's CNY 4 trillion stimulus packages. He said that without the huge investment, the figure might be only 390 million tonnes or so. In addition, steel exports are also unlikely to keep the levels posted last year.
Despite the overcapacity, domestic steel mills that trimmed their production last October are again running at full rate. Based on figures offered by Mr Wu Xichun senior advisor to CISA, China's 2009 steel output would exceed 500 million tonnes.
To ease the problem, the steel support plans approved by the State Council lately has further raised steel industry standards to force the sector to slim down and consolidate, increasing the minimum size of blast furnaces from 300 cubic metres to 400 cubic metres and the minimum size of converters from 20 tonnes to 30 tonnes.
Source: China Business News
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