China is fighting international pressure to speed up its timetable for shutting down surplus steel plants despite warnings that a temporary price surge will collapse by next year.
The country has been promising for the past decade to cut its huge production overcapacity, which competitors blame for depressing world steel prices and environmentalists cite for energy waste and smog.
Last year, China made 803.8 million metric tons of crude steel with production capacity of 1.13 billion tons, according to the World Steel Association and the Ministry of Industry and Information Technology (MIIT).
China's steelmaking capacity may actually be higher than that.
In April, an MIIT official told a conference that "some dead capacity" was not included in the ministry figure, Reuters reported. The previous capacity estimate was 1.2 billion tons.
China's overcapacity of at least 326 million tons exceeds the combined output of the second, third and fourth-ranked producers—Japan, India and the United States.
A decade ago, China made less than one-third of the world's steel. Last year, the country produced nearly half of global output, but the domestic industry lost 64.5 billion yuan (U.S. $9.6 billion), according to the China Iron and Steel Association (CISA).
China's government has responded to international trade complaints, anti-dumping measures and tariff penalties by setting tougher targets for capacity cuts, freezing licenses for new projects and pledging to kill off "zombie" companies that have been kept alive by easy bank loans.
But despite claims of shedding 90 million tons of capacity by the end of last year and promises to cut another 100 million to 150 million tons by 2020, some production lines have reopened this year to take advantage of short-term price gains.
Warnings abound
In March, analysts warned that some 160 million tons of steelmaking capacity had come back online in Tangshan, a northeast industrial center in Hebei province.
Recent reports cite firming prices due to economic stimulus spending and supply disruptions caused by widespread flooding.
Iron ore price steels itself above $US55 a tonne
The iron ore price has edged higher, defying yet another forecast for the commodity to come under pressure in the near term.
Iron ore inched up 0.2 per cent to $US55.80 overnight, according to The Steel Index, from $US55.70 the previous day.
But the key export faces a range of headwinds, including a property correction in China, UBS analysts warned in a research note.
Property investment in China is set for slower growth over the next year, as current momentum has mostly been fuelled by government stimulus since the second half of 2015, UBS said.
“A material amount of construction activity has likely been front-loaded from 2017 into 2016, fuelled by credit growth,” analysts led by Andreas Bokkenheuser wrote.
“Steel and iron ore support this year thus leaves demand downside in 2017-18. And now with supply on the rise, prices should come under renewed pressure.”
Source:Theaustralian