BEIJING (Reuters) - The efforts of Chinese steel mills to boost prices by restricting output are not sustainable past the short-term, state-backed newspaper China Economic Times reported on Monday, citing an official from the state planner.
Despite recent declines in steel products inventories, demand has not increased significantly and there are still downward pressures on prices from the supply side, the report cited Liu Jie of the National Development and Reform Commission (NDRC) as saying.
“But iron ore prices dropped recently and profits at mills are recovering, which may be followed by the mills resuming production levels,” Liu Jie told the newspaper, adding that limiting output to shore up prices could not sustained.
In August, some mills in China had cut their production rates voluntarily to stabilise prices or halted output due to maintenance.
Chinese mills have been pressured by weak downstream demand and environmental protection measures, while their profits were also squeezed by rising raw material prices, the report said.
Most listed steel firms in China posted lower net profit or swung into the red in the first six months of this year.
The past few years of high profits at Chinese steel mills cannot last, but neither will the large-scale losses of 2015 re-occur, Liu said, according to the China Economic Times report.
“Resolving overcapacity and shutting down substandard steel mills have achieved concrete results, and supply and demand in the industry is more balanced,” Liu was quoted as saying.
China has shut more than 150 million tonnes of steel capacity in the past three years as part of a campaign to modernize its economy, but it still accounts for about half of global output, with a capacity of 980 million tonnes a year.
Chinese steel mills have also had to cut output on requests from the government several times over the past two or three years to meet anti-pollution requirements.
Mills in top steel-making city Tangshan, for example, were ordered to limit output in September ahead of China’s 70th anniversary of establishment of the People’s Republic of China on Oct 1.
The world’s biggest steelmaker churned out 664.87 million tonnes of steel in the first eight months of this year, up 9.1% from the same period of 2018, data from the National Bureau of Statistics showed on Monday.
Reporting by Min Zhang and Shivani Singh; Editing by Tom Hogue