China’s Mills Should Refrain From Expansion for Three Years

By Bloomberg News

Aug. 13 (Bloomberg) -- Steelmakers in China, the world’s largest producer, should refrain from expansion for the next three years to curb overcapacity, the industry minister said.

Steelmakers have the capacity to produce 660 million metric tons of steel a year, more than annual demand of 470 million tons, Li Yizhong, minister of industry and information technology said today in a televised press briefing in Beijing.

“China’s iron and steel industry is the worst in the country in terms of excess capacity,” Li said. “Plans to purely expand capacity of mills won’t be approved. I would like to call on the industry: No new projects for three years.”

The Asian nation is trying to stop a supply glut from stalling a price and profit revival for larger mills including Baosteel Group Corp. Excess production by high energy-consuming and polluting small mills has also led to the over-importing of the raw material iron ore and raised costs, the China Iron & Steel Association said last month.

“The overcapacity in the steel industry would stir a price war, hurting profits of the mills,” said Hu Yanping, an analyst at Umetal Research Institute. “But if this is just Li’s personal appeal, the effect would be very limited.”

Li’s comments that the ministry won’t approve capacity expansion echoes a government policy set in 2005, which said it won’t allow expansion plans unless older plants with similar capacity were closed.

About 35 percent of installed hot-rolled wide strip capacity in China was built without state approval, Umetal’s Hu said.

To contact the reporters on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net; Eugene Tang in Beijing at eugenetang@bloomberg.net