China must cut steel out­put deeper and faster, says JSW Steel

The Pak Banker - - BUSINESS -

China's plan to cut its an­nual crude steel ca­pac­ity by about 13% by 2020 won't be enough to re­vive an in­dus­try reel­ing un­der a slow­down in the world's se­cond-big­gest econ­omy, a top of­fi­cial at In­dia's third-big­gest pro­ducer said.

"There's ex­cess sur­plus, so they have to cut pro­duc­tion," Se­sha­giri Rao, joint man­ag­ing di­rec­tor of JSW Steel Ltd and chief fi­nan­cial of­fi­cer for the group, said in an in­ter­view in Mum­bai. "Al­most ev­ery coun­try has taken one step or the other to close its bor­ders, but the im­port threat con­tin­ues."

A global glut has roiled steel­mak­ers from ArcelorMit­tal, the world's big­gest, to Tata Steel Ltd and JSW in In­dia as de­mand for the al­loy in China cools at a pace faster than the de­cline in pro­duc­tion, spurring record ex­ports. The Euro­pean Union last week in­tro- duced anti-dump­ing du­ties on cer­tain prod­ucts from China and Rus­sia for un­fairly un­der­cut­ting lo­cal mak­ers, while In­dia ear­lier this month im­posed min­i­mum im­port prices.

Ear­lier this month, China pub­lished a plan on its State Coun­cil's web­site to trim the size of its an­nual crude steel ca­pac­ity by as much as 150 mil­lion met­ric tonnes by 2020, or about 13% of ex­ist­ing ca­pac­ity, which the China Iron and Steel As­so­ci­a­tion es­ti­mates at 1.2 bil­lion tonnes. China's out­put, which ac­counts for about half the world's pro­duc­tion, fell last year for the first time since 1981. "The pro­duc­tion cuts an­nounced may not have any im­pact un­less we see an ac­tual drop ev­ery month," said Goutam Chakraborty, an an­a­lyst at Mum­bai-based bro­ker­age Emkay Global Fi­nan­cial Ser­vices. "Ul­ti­mately, if China wants to ex­port, they will. In­dia is a big mar­ket and de­mand is ac­tu­ally grow­ing."

In­dia's con­sump­tion rose 3% last fi­nan­cial year and de­mand is es­ti­mated to grow be­tween 4% and 5% an­nu­ally, Rao said. While China's over­seas ship­ments dropped in Jan­uary from a month ear­lier, the re­lief may be short­lived as the de­cline may have been the re­sult of slow­ing pro­duc­tion be­fore the Lu­nar New Year hol­i­days, when man­u­fac­tur­ing typ­i­cally eases, ac­cord­ing to Shen­hua Fu­tures Co. In­dia's big­gest maker Tata Steel, which swung to a loss of $313 mil­lion in the quar­ter through De­cem­ber, said on 4 Fe­bru­ary that im­ports from China, Rus­sia, South Korea and Ja­pan have surged to all­time highs on the back of lack-lus­ter do­mes­tic de­mand, ex­cess ca­pac­ity and com­pet­i­tive cur­ren­cies. They are "dis­tort­ing the de­mand-sup­ply bal­ance in many re­gions," it said in a state­ment.

ArcelorMit­tal, which twice re­duced its profit fore­cast last year, said on 5 Fe­bru­ary that prices de­te­ri­o­rated sig­nif­i­cantly as a re­sult of ex­cess ca­pac­ity in China. JSW Steel re­ported record quar­terly loss in the Oc­to­berDe­cem­ber pe­riod.

Prices of hot-rolled coils, the bench­mark, traded at Rs.26,750 a tonne in In­dia as of Fri­day, ac­cord­ing to Metal Bulletin data. A 26% slump in 2015, the most since at least 2008, has dragged down the shares of lo­cal steel­mak­ers. Tata Steel has dropped 33% in the past year, while state-owned Steel Au­thor­ity of In­dia Ltd tum­bled 52%. Lux­em­bourg-based ArcelorMit­tal plunged 69% in the same pe­riod. Rao's JSW Steel ad­vanced 5.6%, out­per­form­ing ri­vals and the bench­mark in­dex. Fitch Rat­ings said last week that any mean­ing­ful im­prove­ment in prof­itabil­ity of In­dian steel mills looks un­likely be­fore 2017.

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