Jump heightens Beijing concerns of mills reopening despite efforts to pare surplus
A run-up in China steel prices has heightened concerns in Beijing that mills could reopen, putting an end to hard-won reductions in excess capacity.
Average prices for rebar, a steel product used in construction, across the country pushed above Rmb3,000 ($463) per tonne last week for the first time since 2014.
The rebound in steel prices has sparked a surge of speculative interest in Chinese steel and iron ore futures, which the government has tried to curb by increasing transaction fees and warning retail investors against commodity trading.
Overheated markets have also sparked fears among authorities that steel capacity will come back online as mills rush to make good on high margins.
Excess production and a surge in exports from China have contributed to the global steel industry’s worst downturns in 50 years. Tata Steel, for example, has blamed a glut of low-priced Chinese steel globally fed by heavily-subsidised industry in China for making its high-cost British operations uneconomic.
China’s government aims to trim its bloated steel sector by 100m-150m tonnes of capacity in the next five years.
The provincial government in Hebei, which produces one-quarter of Chinese steel, has promised to “investigate or remove from position” officials who allow new mills or replaced mills in their jurisdiction, according to the official Xinhua News Agency.
Two years of declining demand saw prices in China slump last year. Extensive losses crippled steel mills across the country, providing an opportunity to close excess capacity.
Lossmaking steelmakers — known as “zombie companies” — are responsible for a debt build-up of Rmb3.27tn ($499bn) in the industry and an average debt-to-equity ratio of more than 70 per cent.
Source: next.ft.