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China to take 5 to 10 years to fix Steel overcapacity: Xu Kuangdi

CHINA June 06 2013 8:05 PM

BEIJING (Scrap Register): China's crude steel demand is estimated to be 716 to 750 million tons by 2015 based on three forecasts of GDP, investment and steel industry and the surged some 400 million tons steel overcapacity was brought up by massive infrastructure projects during 2004-2012, said Xu Kuangdi president of the Chinese Society for Metals, on the 17th Shanghai Metallurgy Expo.

He added that the excessive capacity would reach 200 to 300 million tons each year as China's economic growth has presently landed stably, therefore it may take 5-10 years to closing down overcapacity completely.

More severely, this strong expansive impulse did not calm down yet as 510 projects were put into operation in 2013 and 269.9 billion yuan was invested on those under construction.

In view of poor profit for most steel mills due to twin drags of oversupply and high raw material prices, Xu Kuangdi advised that we could draw lessons from EU and Japan's experiences in reducing overcapacity, such as constraining government's assistance to steel enterprises and abolishing loans to steel expansion projects so as to wash out weak players in the markets of Germany or like Japan to put main smelting processes in part steel mills and improve their competitiveness via optimizing technological process and acquisition.

Regarding 9.1% high growth of China's crude steel production in the first quarter of 2013, most experts participated in the conference ascribed it to supernormal capacity release, but Xu Lejiang, president of Baosteel, put it bluntly that we are still in deep autumn but not winter and it's a not bad thing to take a long time waiting for spring, during which we could have plenty of time focusing on thinking and transformation.

He opined that the super growth of crude steel output was largely caused by sustaining high operation rate since last December when most steel mills increased their purchase and inventory of iron ore which dropped to a low level then. Nevertheless, steel demand did not turn out to be as robust as market expectation in spite of ongoing urbanization progress and consumption stimulus policies.

Xu Lejiang expected that steel mills' operating in May would be worse than that in April, and even badly in June. He believed that more producers would consequently exit from the market if our government is determined to transform economic growth pattern.

In his view, four-trillion yuan stimulus policy could only be regarded as opium for enterprises rather than effective cure.

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China Scrap Prices 2014 October 24

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