Daily Management Review

With the Aim to Slim Down Bloated Steel Sector, China Looks Overseas


04/21/2016




With the Aim to Slim Down Bloated Steel Sector, China Looks Overseas
China said it will do more to help its firms shift capacity overseas while keeping tight control on adding new capacity at home as part of efforts to ease domestic steel and coal overcapacity.
 
China would "strengthen financing support for enterprises 'going out'", and use loans, export credits and project financing to encourage coal and steel businesses to build capacity abroad, noted a joint statement issued by the central bank and several other government bodies on Thursday.
 
Credit available for new capacity additions in China would also be strictly controlled at the same time.
 
The United States, European Union and others were prompted to call for urgent action earlier this week after China and other major steel producers failed to agree on measures to tackle the overcapacity crisis.
 
"I am cautious about China's move to shift overcapacity overseas as this doesn't help, and just replaces exports," said Jiang Feitao, a steel researcher with the China Academy of Social Sciences.
 
Concerns over rising Chinese crude steel production and exports were raised by Japan, another big steel producer.
 
"We're not sure if the rise is because of a recovery in demand after Chinese New Year or resumptions of production by local mills in the face of higher steel prices. We need to closely look at China's output and exports in April," Koji Kakigi, chairman of the Japan Iron and Steel Federation, told a news conference in Tokyo.
 
China’s efforts risk being undermined by a sharp rise in domestic steel prices that has seen mills ramp up output even while it has engineered some steel capacity cuts. Even "zombie" mills, which had stopped production but were not closed down, have been resurrected.
 
As supplies tightened following plant shutdowns last year, consumers restocked and seasonal demand picked up, Chinese steel prices SRBcv1 have risen by 77 percent so far this year.
 
Steel futures in China jumped nearly 9 percent to their highest since September 2014 on Thursday. The price of rebar used in construction for October delivery on the Shanghai Futures Exchange rose to as much as 2,787 yuan ($430) a tonne.
 
Helen Lau, an analyst at Argonaut Securities said steel product inventories held by Chinese traders have fallen by more than a quarter from last year's levels.
 
"Therefore, we are of the view that steel prices may extend their rally through to the second quarter," Lau said.
 
Chinese steel firms have already ventured abroad, building plants in South Africa and Eastern Europe.
 
Hebei Iron & Steel Group this week pledged to invest $300 million in the Serbian steel plant, which employs more than 5,000 workers and signed a 46 million euro ($52 million) deal to buy a loss-making steel plant.
 
In a bid to tackle huge capacity overhangs that have saddled domestic firms with losses and debts, China plans to shed 100-150 million tonnes of domestic crude steel capacity in the next five years, and another 500 million tonnes of surplus coal production. The government is promising measures to deal with the debt problem and has earmarked 100 billion yuan ($15.45 billion) to handle layoffs.
 
(Source:www.reuters.com) 






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