BEIJING: Controlling excess capacity and output remains one of the big tasks facing China's sprawling steel sector this year, with demand growth expected to slow to 2.6-4.6 percent per year from 2011 to 2015, the China Iron & Steel Association (CISA) said on Friday.
Steel output growth reached 9.3 percent in 2010, but CISA's vice-secretary general, Zhang Changfu, told a news conference that China could no longer rely on rapid increases in demand and had to put a stop to rampant capacity expansion.
Zhang blamed small-scale and privately-owned steel mills for a long-standing supply glut that has been weighing on prices and profits in the sector.
"One thing we want to point out is that the output of small- and medium-sized regional enterprises has risen much more quickly," said Zhang Changfu, vice secretary general of CISA.
CISA estimated that steel production by small- and medium-sized steel mills rose 52.72 percent in January and February compared to a year earlier, outstripping the 6.86 percent growth for big state-owned steel mills.
CISA has been waging a long war on small steel producers, which it blames for disrupting "market order" in the steel sector and for undermining China's negotiating position in talks with foreign iron ore suppliers.
China aims to eliminate hundreds of smaller mills in the next five years by raising environmental and technical standards and by encouraging mergers and acquisitions. It plans to bring 60 percent of the country's total steel capacity under the control of its top ten producers by the end of 2015.
Crude steel production last year stood at 627 million tonnes, but CISA said production capacity stood at 768 million tonnes by the end of the year, up from 414 million tonnes at the end of 2005.
Zhang said that 2011 was a key year for China's industry restructuring plans, adding that excessive capacity was putting undue pressure on China's energy supplies, natural resources and environment.
China's daily output of crude steel stood at 1.904 million tonnes over the April 11-20 period, down 1.5 percent from the previous 10 days. That would amount to 700 million tonnes on an annualised basis, up 11.6 percent on 2010, CISA data showed on Thursday.
"The fundamental market situation hasn't changed and we think it is hard to change," Zhang said, adding that steel output is expected to steadily increase over the rest of year but not by much.
Chinese steel mills faced a squeeze in margins in the first quarter as surging raw materials cost eroded their profits.
Average steel production costs for Chinese steel mills rose 27.5 percent in the first quarter from a year ago. Coking coal costs climbed 15.17 percent and iron ore import costs surged 54.4 percent.
Zhang didn't provide overall data for steel prices in the first three months, but according to industry consultancy Mysteel, the price of rebar in Shanghai increased by about 2.2 percent over the period.
CISA added that its 77 steel mill members saw a profit margin of 2.91 percent for the first quarter, 3.29 percentage points lower than the Chinese industry average, with 10 members actually making losses over the period.
Analysts have suggested that a restriction in power supplies in the coming months could help reduce output and boost prices, with China facing what could be its worst electricity shortages in years.
But Zhang said he had not yet received any information that Chinese steel companies were suffering, or that they had been ordered by local governments to cut power consumption.
The industry was hit by a series of enforced power cuts late last year when a number of local governments made last-ditch efforts to meet their energy savings targets for the 2006-2010 period.
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