China to Curb Steel Production to Reduce Oversupply

By Bloomberg News

Oct. 14 (Bloomberg) -- China, the world’s largest steel producer, is working on plans to curb excess capacity as the nation faces “severe oversupply,” according to the nation’s third-largest mill.

The government may have detailed plans on how to close obsolete mills, advance mergers and reduce the number of iron ore importers by the end of the year, Deng Qilin, the general manager of Wuhan Iron & Steel Group, said in an interview.

Steel prices in China have dropped 23 percent since reaching a 10-month high on Aug. 4, as overproduction offset rising demand created by government stimulus spending. Some steelmakers have incurred losses at current prices, Deng said.

“The government will impose strict measures to effectively close outdated mills and boost consolidation,” Deng, also the chairman of the China Iron and Steel Association, said while attending the World Steel Association annual meeting in Beijing yesterday. “We bigger players will surely benefit from such a move.”

Wuhan Iron & Steel Co., the Shanghai-listed unit of Wuhan Group, rose 2.4 percent to 7.55 yuan at 10:49 a.m. local time, taking the year’s advance to 57 percent.

Chinese steel prices probably won’t rebound for the rest of the year, Deng said. Hubei province-based Wuhan Steel may carry out annual maintenance which will reduce output, he said, declining to give details.

Record Output

Steel output in China reached a record this year as the government invests 4 trillion yuan ($586 billion) in the economy, spurring public works building. The nation’s cabinet in August said it was studying curbs on overcapacity in industries including steel.

Demand may expand by 19 percent this year to 526 million metric tons, the World Steel Association predicted this week. Growth may slow to 5 percent next year, it said.

Mills in China may have the capacity to produce 700 million tons of steel a year now, Deng said. The overcapacity is affecting Wuhan Steel’s expansion plans, he said.

The National Development and Reform Commission, China’s top planning agency, is unlikely to approve a feasibility report on Wuhan Steel’s planned 10 million-ton steel plant this year, Deng said. Without the approval, Wuhan can’t start construction at the project at Fangcheng Port in the southwestern province of Guangxi, he said.

Premier Wen

“Premier Wen Jiabao has said to build the plant at an appropriate time,” Deng said. “We will get the approval eventually, but not now. We have the patience and we can wait because the new mill, aiming at high-end products, would make us stronger.”

Chinese steelmakers are facing rising import competition, with Japanese manufacturers “dumping” products in the country, Deng said. Japan is the world’s biggest exporter this year, while China ranks only sixth and has turned into a net importer, he said.

Steel exports to the U.S. and Europe plunged as much as 85 percent in the first eight months, the steel association said Oct. 12. The U.S. and European Union are slapping duties on Chinese imports after their producers claimed Chinese rivals benefited from unfair subsidies.

Wuhan Steel and Baoshan Steel Group, China’s biggest mill, have asked the nation’s commerce ministry to investigate imports of grain-oriented flat-rolled electrical steel from the U.S. and Russia, the ministry said June 1.

--Helen Yuan. Editors: Tan Hwee Ann, Teo Chian Wei.

To contact the reporter on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net