China's steel capacity likely to grow this year: industry ministry

[SHANGHAI] Crude steel capacity in China, the world's top producing country, is likely to grow this year despite difficult market conditions as new projects are coming onstream, the Ministry of Industry and Information Technology (MIIT) said on Thursday.

Long-standing overcapacity, slower growth in demand and tighter credit have forced many Chinese steel mills to produce at a loss or at low profitability.

"Generally, oversupply in the steel sector is unlikely to improve this year, exports will drop slightly, steel prices will stay at low levels and steel mills' profitability may not be positive," MIIT said in a report on its website.

Investment in the ferrous metals smelting and processing industry fell 5.9 per cent last year but remained at a relatively high level and there are still 2,037 new steel projects under construction.

China's crude steel capacity reached 1.16 billion tonnes at the end of 2014, with its production accounting for 49.4 per cent of global output, MIIT said.

Some analysts expect capacity to increase by only about 10 million tonnes this year.

Despite the removal of an export rebate for boron-added steel products from this year, steel exports are expected to stay at elevated levels due to a continued supply glut at home and competitive prices, the ministry said.

The China Iron & Steel Association has forecast domestic crude steel output would fall 1.1 per cent to 814 million tonnes this year, after rapid expansion over the past decade, as a slowing economy has hit demand for commodities.

China's apparent steel consumption fell 4 per cent to 740 million tonnes last year, and steel demand is unlikely to improve much as Beijing is shifting its economic growth model and slowing fixed asset investment.

In order to minimise their risks on loans, banks have largely cut credit to Chinese steel mills since last year, leading to shutdowns and bankrupticies at some companies.

The debt-to-asset ratio for large steel mills dropped 0.8 per centage points to 68.3 per cent last year but was still 11 percentage points higher than in 2007 when the industry experienced a boom.

REUTERS