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