BRUSSELS May 10 China is serious about cutting
millions of tonnes of excess steel capacity but that will not
mean lower production, particularly in the next few quarters,
the head of the European Union steel body Eurofer said on
China pledged early last year to cut 150 million tonnes of
excess capacity by 2020. The move, along with rising steel trade
barriers and an infrastructure spending splurge by Beijing,
helped global steel prices surge 45 percent since December 2015.
But Chinese steel prices have slipped in recent
weeks on concerns about a slowdown in construction and
"I think the Chinese government has a genuine goal of
reducing capacity because they subsidise it, its costing them
lots of money ... but cutting capacity doesn't mean you cut
production," Eurofer president Geert Van Poelvoorde said.
"There will be in the next quarters more overproduction in
China," he told the European Steel Day conference in Brussels.
Output in China, which accounts for half of global steel
production, rose 4.6 percent in the first quarter to 201.1
million tonnes, after a 1.2 percent increase to 808.4 million
tonnes last year.
However, Chinese steelmaking capacity has fallen. China,
which holds nearly half the world's 800 million tonnes of spare
capacity, cut 65 million tonnes of capacity in 2016 and aims to
cut another 50 million tonnes this year.
China's cuts last year, part of a crackdown on polluting
industries, mostly involved idled plants. Closing other plants
may be more difficult because of the risk of social unrest as
jobs are lost in the labour intensive steel industry.
"China is complex, most plants are in the provinces. When
the central government decides something, it doesn't mean the
provinces execute it," said Van Poelvoorde, who is also CEO of
ArcelorMittal Europe Flat Steel Products.
"It's not so easy to implement and what they (will) manage
to do is not so clear," he said.
In addition, he said China's cuts might not be enough to
balance an oversupplied market as Iran and Russia, amongst
others, have added new capacity beyond their domestic needs.
"They'll start to export much more, so for sure China's cuts
won't be enough," he said.
A report by the Organisation for Economic Cooperation (OECD)
and Development said global steel capacity rose 1.4 percent in
2016 to 2.39 billion tonnes.
Iran has 19 projects planed between now and 2019 that will
expand capacity by almost 24 million tonnes, adding to existing
estimated capacity of 28 million tonnes now, the OECD said.
(Reporting by Maytaal Angel; Editing by Edmund Blair)