CHINESE STEEL OVERPRODUCTION WILL CONTINUE

Chinese steel mills started operating at less than 70% capacity .However, they still out 820 million metric tons of steel annually.

Terance Ko,Hong Kong-based Director of Consulting for Hatch Associates ,stated that China’s apparent steel consumption will fall toward the 500 mmt per year range by 2020.

Hatch_Platts_550_032116.jpg

Ko also had a discussion about market conditions in China and what role the central government there played in creating the overcapacity problem, which is lingering after an aggressive stimulus plan was created in response to the 2008-2009 global financial crisis.

According to his explanation of how overproduction started said it began with the 2008 Olympic bid. Ever since the bid was announced, and then won, Chinese steel production has increased about 15% every year. No other nation could have produced that much steel and Ko said that much, honestly, was needed for the rapid industrialization necessary to prepare for the Olympics.

Steel rods or bars used to reinforce concrete, in warehouse

Around quarter three of 2006, the Chinese Government finally figured out that things were growing too quickly. There was a deliberate decision to slow down the steel industry. If the global financial crisis hadn’t happened, peak steel in China would have happened around 2009. Instead, in 2009 Beijing pushed 4 trillion RMB into the market and steel production continued.

From there, the subsidies continued. In the first 3 quarters of 2015, 34 listed companies received 2.6 billion RMB subsidies from the government.

Today, up to 150 mmt of steel making capacity is planned to be eliminated in the next five years, with financial support from Beijing of 100 billion RMB.

By 2020, China will have approximately 400 mt of excess rolling capacity. Mainly long products and other construction-related products will be produced from this capacity.

China is now committing to let private companies fail, mostly those with capacity of less than 2 or 3 mmt. Steel exports might go down by a million tons or so, but nothing that will move markets in a big way.

There was some positive news about China’s steel industry as well. Cleaner technology is being embraced by both steelmakers and the government. Ko stated,that forecasts are showing China’s percentage of electric arc furnace  market share is rising from its current low adoption rate of 7% to as high as 30% by 2030.

Source : https://agmetalminer.com/2016/03/21/hatchs-ko-chinese-steel-overproduction-will-continue/

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