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China mills push steel output above 2008 levels

(Agencies)
Updated: 2009-02-27 10:51

A blind rush back to production by Chinese steel mills has pushed China's crude steel output back up above the 2008 average, threatening to worsen oversupply and ruin profitability, a top industry official has warned.

Related readings:  Baosteel: China steel market still under pressure  Weak demand, idle capacity dim steel market's recovery  Steel trade faces stiff challenges  Major Chinese steel makers' net profit down 43% in 2008

"Demand has not yet recovered and there has been no apparent effect from government policies aimed at boosting domestic consumption, but the extra crude steel output from the mills is incredible," Wu Xichun, honorary chairman of China Iron and Steel Association, told an internal meeting of the body last week.

According to a transcript, Wu said crude steel output in China was expected to top 1.41 million tons a day in mid-February, translating into estimated annual production of 517 million tons in 2009 if maintained.

That would be more than the 500.48 million tons of crude steel that China, the world's largest steel making country, produced in 2008, despite a collapse in global demand for cars, ships and construction in recent months.

"Downstream orders have recently improved compared with the last quarter, but they have still fallen markedly from a year earlier," China's top steelmaker Baosteel said on Wednesday.

The industry body may be expecting production to fall back again, since Luo Bingsheng, vice-chairman of the association, said earlier this week that overall 2009 crude steel output was expected to reach 490 million to 500 million tons, slightly less than last year.

However, China is at risk of oversupply in steel because it has far more capacity than it actually uses. Crude steel capacity reached 660 million tons at the end of 2008, senior officials from the association said.

Chinese mills ramped up production in response to high prices in previous years, and were encouraged to do so by government policies that supported investment in higher-value steel making capacity.