China 2016 steel prices to fall 10% on oversupply: S&P

[SINGAPORE] The average price for steel in China this year could drop 10 per cent from 2015 on soft demand and as Beijing's pledge to cut excess production is unlikely to reduce surplus supplies in the short term, credit rating agency Standard & Poor's (S&P) said on Tuesday.

Chinese spot steel prices which rose to multi-month highs last week, fell this week after government data showed a drop in output in the first two months this year.

China's steel demand remained weak as property developers more focused on destocking instead of buying land or building new houses, May Zhong, a director of corporate ratings at S&P said at a seminar.

Even as the central government has pledged to cut its steel production capacity by 150 million tonnes per year (tpy) in the next three years, Ms Zhong said implementation could be slower than expected due to local governments' concerns about social stability, job and tax revenue losses.

"We are still expecting some new capacity to come online in China which means that the net capacity reduction, ... (or) the magnitude will be insufficient to improve the supply-demand dynamic in 2016," Ms Zhong said.

China is expected to add new steel production of about 10 million tpy of new capacity in 2016-2017, she said.

REUTERS