China’s push to transfer excess steel capacity by building plants overseas faces skepticism from analysts because of the size of the mills being proposed.
The CHART OF THE DAY compares steel production in 2013 of a single company, Hebei Iron & Steel Group, to 10 countries and regions. China’s total output of 779 million metric tons isn’t shown because it produced more than all others on the chart combined, including seven times more than world No. 2 Japan.
Hebei Steel in September said it seeks to build a 5 million ton venture in South Africa with Johannesburg-based Industrial Development Corp. That’s equivalent to two-thirds of that nation’s output last year, and a third of continental Africa’s - - though it’s barely a 10th of Hebei Steel’s production, according to World Steel Association data.
’’I think you’re crazy,’’ said Wayne McCurrie, a Pretoria-based money manager at Momentum Asset Management, referring to Hebei’s plan. “South Africa has got so much capacity already. We’re not going to have an overnight growth surge,” and selling to other countries would involve high transport costs, he said.
China, struggling with overcapacity in the steel, cement and glass industries, will encourage transferring “competitive” production to Southeast Asian countries in need of new infrastructure, Premier Li Keqiang said on Nov. 13. Hebei Province, the nation’s biggest steelmaking region, subsequently said it aims to transfer 5 million tons of production capacity overseas by 2017 and 20 million tons by 2023.
“Building a large steel plant overseas is imaginary because even though 5 million tons is quite normal in China, it’s too big to be absorbed by an overseas market,” said Xu Xiangchun, Beijing-based chief analyst with research firm Mysteel.com. “Transferring production abroad can’t be the main solution to tackle overcapacity,” and would conflict with the government pledge to maintain social stability by keeping employment, he said.
Hebei Steel’s venture is “based on investigation into South Africa and nearby markets,” Yang Haixia, the company’s publicity department head, said in a phone interview. “Our global layout would be very good to improve our competitiveness. Globalization would be the main theme in our future development.”
Source: Bloombeg
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