China’s steel sector threatens to slide back towards overcapacity

China’s efforts to reduced overcapacity in its steel sector over the last few years may be reversed after cuts in production capacity have led to increased steel prices, boosting profits among steelmakers and encouraging them to invest into more capacity.

China which now produces more than half of the world’s steel saw national production increase by 8.1% year-on-year in 2018 to 928 million tons. This year, the country has also produced 231 million tons of still in the first quarter increasing by 9.9% year-on-year.

This growth in production could potentially lead to supply outstripping demand once again, putting pressures on the industry and affecting profitability.

According to data from the China Iron and Steel Association (CISA), while steelmakers have reduced their production capacity of lower grade steel, investment into ferrous metal smelting and rolling increased by 30% during the first quarter this year.

In response, vice president of the CISA has called for more discipline in the industry and for steel producers to prevent illegal new capacity but focus on mergers and acquisitions, keeping alert to differences in supply and demand levels.

Source: China Knowledge