Debts rise at China's big steel mills, con­sump­tion falls

The Pak Banker - - 6BUSINESS -

BEI­JING: China's ma­jor steel mills added to their debt pile in 2015 while con­sump­tion of steel prod­ucts fell for the first time in two decades, a se­nior of­fi­cial said on Wed­nes­day, adding to the in­dus­try's dif­fi­cul­ties as it tries to tackle a crip­pling glut. The debt ra­tio of ma­jor steel mills rose 1.6 per­cent­age points to 70.1 per­cent from a year ago, tak­ing the big mills' debt to 3.27 tril­lion yuan ($499 bil­lion), Li Xinchuang, the vice sec­re­tary gen­eral of the China Iron & Steel As­so­ci­a­tion (CISA), told a con­fer­ence.

At the same time, steel prod­uct con­sump­tion in China fell 5.4 per­cent to 664 mil­lion tonnes in 2015 from a year ago, the first drop since 1996, said Li, who is also head of the China Met­al­lur­gi­cal In­dus­try Plan­ning and Re­search In­sti­tute.

China is try­ing to rein in its bloated steel sec­tor, and aims to cut crude steel ca­pac­ity by 100 mil­lion to 150 mil­lion tonnes within the next five years, as well as ban new steel projects and elim­i­nate so-called "zom­bie" mills.

How­ever, slower de­mand and ris­ing debt will put fur­ther pres­sure on the in­dus­try, with prices al­ready at multi-year lows.

China's ma­jor steel mills pro­duced a com­bined 601 mil­lion tonnes of steel last year, ac­count­ing for nearly three-quar­ters of the coun­try's to­tal out­put, Li said. CISA ear­lier said the coun­try's to­tal an­nual crude steel ca­pac­ity now stands at 1.2 bil­lion tonnes. To­tal pro­duc­tion reached 803.8 mil­lion tonnes last year, down 2.3 per­cent, the first drop since 1981. The drive to cut in­dus­trial ca­pac­ity will force China to lay off prob­a­bly 1.8 mil­lion work­ers from coal and steel sec­tors, and the cen­tral govern­ment will al­lo­cate 100 bil­lion yuan to deal with job losses and tackle debt.

Brazil­ian miner Vale SA ex­pected 70 mil­lion tonnes of global iron ore ca­pac­ity to be shut down this year and an­other 30 mil­lion tonnes of ca­pac­ity will also be "at risk", Joao Men­des de Faria, the com­pany's head of China told the con­fer­ence.

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