Steel in­dus­try eyes plans to re­solve over­sup­ply

China Daily (Hong Kong) - - BUSINESS - By WANG YING in Shang­hai wang_y­ing@chi­

The au­thor­i­ties are draw­ing up plans to re­solve the steel in­dus­try’s se­vere over­sup­ply, an of­fi­cial at the China Iron and Steel As­so­ci­a­tion said.

The plans are to im­prove the sec­tor’s com­pet­i­tive­ness by elim­i­nat­ing ob­so­lete ca­pac­ity, up­grad­ing pro­duc­tion lines and of­fer­ing sup­port to com­bat ex­cess ca­pac­ity, a CISA source said on Wed­nes­day.

“The National De­vel­op­ment and Re­form Com­mis­sion and the Min­istry of In­dus­try and In­for­ma­tion Tech­nol­ogy are work­ing closely with re­lated govern­ment de­part­ments to solve the over­ca­pac­ity prob­lem plagu­ing the steel, ce­ment, elec­trolytic alu­minum, plate glass and ship­build­ing sec­tors,” CISA sec­re­tary-gen­eral Zhang Changfu was quoted by the China Se­cu­ri­ties Jour­nal as say­ing.

The new poli­cies will make it harder for com­pa­nies in in­dus­tries with ex­cess ca­pac­ity to ob­tain land, fund­ing or en­vi­ron­men­tal cer­ti­fi­ca­tions, said Zhang.

Chi­nese steel pro­duc­ers’ profit mar­gins have been nar­row­ing by the month. Ma­jor mills made an ag­gre­gate firsthalf profit of 2.27 bil­lion yuan ($370 mil­lion), but they posted a com­bined loss of 699 mil­lion yuan in June, the first month this year that the en­tire in­dus­try was in the red.

Fur­ther­more, the in­dus­try ac­tu­ally recorded an op­er­at­ing loss dur­ing the first half, with the short­fall off­set by 4.3 bil­lion yuan in in­vest­ment pro­ceeds and 3.8 bil­lion yuan from non­core busi­nesses.

Rapidly mount­ing steel in­ven­to­ries add to the bleak pic­ture. CISA fig­ures show stock­piles peaked at 19.97 mil­lion tons at the end of March.

Al­though in­ven­to­ries de­clined in the fol­low­ing months, to­tal stocks as of endJune stood at 15.46 mil­lion tons, 30.1 per­cent higher than early Jan­uary.

In ad­dress­ing the sup­ply glut of the steel in­dus­try, CISA also called for its mem­ber com­pa­nies, es­pe­cially large steel mills, to in­crease their buy­ing vol­umes on the na­tion’s iron ore trad­ing plat­form, which would give the mills a big­ger say in the world mar­ket.

China’s first iron ore spot trad­ing plat­form was of­fi­cially launched on May 8, 2012, CISA said on Wed­nes­day.

The plat­form was set up to change a sit­u­a­tion in which iron ore pric­ing was dom­i­nated by the three iron ore gi­ants and ex­plore a more open, trans­par­ent and fair pric­ing sys­tem.

“In spite of China’s large de­mand for iron ore, Chi­nese firms still have lit­tle say in the pric­ing mech­a­nism, and the grow­ing in­flu­ence of the plat­form is ex­pected to make some change to the sta­tus quo,” said Zeng Jiesh­eng, an an­a­lyst with Mys­, a lead­ing provider of steel mar­ket in­for­ma­tion.

Steel prices have been on a down­trend since Fe­bru­ary. As of June 30, steel prices were down 6.45 per­cent from early Jan­uary and down 14.69 per­cent from a year ear­lier.

Ac­cord­ing to Wang Guoqing, deputy di­rec­tor of the Lange Steel In­for­ma­tion Re­search Cen­ter, low steel prices and high pro­duc­tion costs are the ma­jor causes for steel mak­ers’ thin­ner profit mar­gins.

“Ma­jor steel­mak­ers’ re­turn on sales was 0.13 per­cent on aver­age in the first half, and the ra­tio even swung to neg­a­tive 0.23 per­cent in June,” Wang said.

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