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Group says market oversupply set to continue in second half
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Oversupply in China’s steel market will likely continue in the second half of the year if production is not brought under control, an industry group said, after slowing demand and falling prices pushed the sector into the red.
National crude steel production rose 7.4 percent from a year ago to 389.87 million tons, according to the China Iron and Steel Association, which represents major mills. Output increased 1.8 percent in the first half in 2012.
Zhang Changfu, the group’s vice chairman, said output growth has outpaced demand growth. “If production cannot be effectively controlled, oversupply is unlikely to ease in the second half,” the group said in a statement.
China’s steel industry has been struggling with overcapacity, slowing demand and falling prices.
The industry group’s 86 members posted a combined loss of 699 million yuan (US$114 million) in June, the first aggregate monthly loss this year, amid weaker steel prices. Thirty-five members were in the red in the first half, the association said.
The Ministry of Industry and Information Technology last week announced plans to cut excess capacity in 19 industries, including steel and cement, to accelerate the closure of old capacity.
Analysts said industry-wide low profitability and mounting environment pressure could make capacity control in the steel sector more effective.
“Although we agree that overcapacity will persist for the next few years, we think industry leaders should benefit from the ongoing closure of marginal capacity,” Goldman Sachs analysts wrote in a note.
Bank of America Merrill Lynch last week tipped China’s steel demand to rise 6 percent in the second half after rising an estimated 4 percent in the first half, citing growth in sectors such as railway construction and urbanization.
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