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Beijing - Crude steel production in China will collapse by 23 million metric tons next year, according to the nation’s leading industry group. That’s equivalent to more than a quarter of annual output from the US.
Supply from the top producer may drop 2.9% to about 783 million tons from 806 million tons in 2015, according to the China Iron & Steel Association.
The slump would be driven by a deepening downturn in local demand and as mills encounter stiffer opposition to exports, Deputy Secretary General Li Xinchuang said in an interview on Wednesday.
“You can’t find any bright spots,” Li said in Shanghai, citing weakness across Asia’s largest economy. “Property developments used to enjoy annual growth of 20% and now at best it is 5%.
Infrastructure investments haven’t taken off due to lack of funds despite of all the planned numbers of projects. Manufacturing investments have also dropped like a stone.”
China’s mills, which produce about half of worldwide output, are battling against losses, oversupply and sinking prices as local consumption shrinks for the first time in a generation.
The fallout from the steelmakers’ struggles is hurting iron ore prices and boosting trade tensions as mills seek to sell their surplus overseas. Shanghai Baosteel Group has forecast that China’s steel production may eventually shrink 20%.
US supply
Li’s estimate of 783 million tons of Chinese production compares with supply from the US of 88.3 million tons in 2014, according to data from the World Steel Association for 2014, the last complete year of figures. That year, output in China was 823 million tons.
Steel demand in China would slump to about 654 million tons in 2016 from 668 million tons this year, said Li, who’s also president of the China Metallurgical Industry Planning & Research Institute. Iron ore imports may drop to 920 million tons in 2016 from about 930 million tons, according to Li.
The oversupply of steel in China is so acute that David Humphreys, a former chief economist at mining company Rio Tinto Group, said that the country would do well to demolish unneeded mills.
‘Surplus capacity’
“There’s about 300 million tons of surplus capacity in China that needs to be not just shut down, it needs to be eradicated, it needs to be bulldozed,” Humphreys, who held the title at Rio for eight years to 2004, said in an interview. Steel production needs to fall, said Humphreys, 63, who is now an independent consultant.
Steel extended losses on Wednesday. Futures for reinforcement-bar, a benchmark product that’s used in construction, fell as much as 1.1% to 1 733 yuan a ton in Shanghai, a record low.
On Tuesday, iron ore with 62% content delivered to Qingdao lost 4.5% to $45.58 a dry ton, a four-month low, according to Metal Bulletin.
Producers in China are making losses of about $50 on every ton, commodity trader Noble Group, said last week, warning that output will probably tumble. At current steel and raw- material prices, China’s steel mills have negative margins, the company said.
Iron ore miners’ shares dropped in Sydney on Wednesday. BHP Billiton fell as much as 3.1% to A$19.73, the lowest since 2008, as Rio Tinto Group, lost as much as 2.9%.
