QINGDAO, China (Reuters) - China’s Iron and Steel Association (CISA) warned of the risk of an output increase this year and called for steel mills to raise production “rationally” as demand growth is expected to be weak in the second half of 2019, a CISA executive said on Tuesday.
China is currently seeing record levels of steel output even as concerns over slowing demand growth cloud the industry’s outlook amid the ongoing Sino-U.S. trade war.
“A big risk embedded in China’s steel industry is the increase of potential enormous production capacity ... thus we urge steel makers to rationally increase output,” said Wu Jingjing, a deputy director at CISA, at an industry conference.
China has already eliminated more than 150 million tonnes of outdated annual crude steel capacity over the past three years - most of it with low efficiency ratings and high emissions - as part of its environmental crackdown and supply-side reforms.
Some of the closed capacity, however, has been replaced by big production complexes with modern, more efficient equipment that has lower emissions. A few production bases – including the first phase of Hebei Zongheng Iron and Steel Co’s 7.7 million-tonne project and Shougang Group’s 9 million-tonne project in Tangshan city - are expected to start production this year.
As of the end of 2018, China had around 980 million tonnes of annual steel capacity.
Even though some major steelmaking hubs such as Tangshan and Handan city in Hebei province have extended output restrictions in heavy industries, including steel, into the second quarter, utilisation rates at Chinese mills have reached 71.69%. That’s the highest since June last year, according to market consultancy Mysteel, reflecting a weaker-than-expected implementation of the curbs.
The world’s biggest steelmaker churned out 314.96 million tonnes of crude steel in the first four months of 2019, up 10.1% from same period last year and accounting for 53% of the world’s total, encouraged by strong profitability at Chinese mills and robust demand from the construction sector so far this year.
Hebei, China’s top steelmaking province, was responsible for a large part of the steel output growth in January-April, adding 12.04 million tonnes over last year, about 46% of the total increase in output across the country, according to data from the National Bureau of Statistics.
“With the completion of capacity reduction in steel industry and weaker-than-expected environmental measures, it is very hard for China to trim more of its current steel (output) with administrative means (such as the production restrictions). Thus, it will depend on market mechanisms to keep markets in balance,” Wu said.
Wu also warned of waning steel demand growth in China’s property market due to weaker financial support and declining fixed-asset investments from the central government in the second half of this year.
“We still maintain our forecast for 2019 steel demand to be 1%-2% higher than 2018, but demand from automobile, household appliances and energy sectors will be weaker,” Wu said.
Steel exports for 2019 are also expected to hold near the same level as last year, he said.
Reporting by Muyu Xu and Shivani Singh; Editing by Tom Hogue