Reuter citing senior officials from the China Iron and Steel Association as saying that, China's crude steel capacity reached 660 million tonnes at the end of 2008, vastly exceeding this year's expected output of 490 million to 500 million tonnes.
Mr Luo Bingsheng secretary-general of the association said the scale of production this year, which will likely fall just below 500.5 million tonnes in 2008, depends on whether China's economy can stage a recovery in the second half, since export markets are likely to continue to be weak. He said that the Chinese steel industry's direct or indirect reliance on exports is about 23%, underscoring the sector's vulnerability to a global economic downturn.
Mr Luo said "A lot of people do not realize this, but our steel industry is deeply dependent on outside markets. Some people may view demand as reviving, but I don't. The imbalance in supply and demand will continue to create an unstable situation. Only additional government measures to stimulate demand will allow the Chinese steel market to regain its feet.”
Mr Luo said over capacity is expected to be a particular problem for mills making hot rolled and cold rolled steel. He said that “Chinese mills expanded into those products in response to high prices in previous years, and were encouraged to do so by government policies that supported investment in higher-value steel making capacity. Only about 30% of Chinese mills managed to avoid losing money as steel prices crashed in October and November. Most of those were smaller, private mills, which tend to react faster to market conditions and generally make cheaper long-steel products.”
In 2008, Chinese construction steel production fell by 0.48% to 262.5 million tonnes while steel sheet output rose 13% to 207 million tonnes.