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China Steel Overcapacity "Beyond Imagination": Official

02-26 18:16 Caijing
The debt ratio may average at about 70 percent, and the aggregate liability in the entire sector could be well above 2 trillion yuan.

The situation of China's iron and steel industry, which has been afflicted by overcapacity and shaky debt, may be worse than expected, said an official with an industry association.

Overcapacity in the industry was probably "beyond imagination," said Li Xinchuang, executive vice-secretary general of the China Iron & Steel Association (CISA). The sector was facing an extremely complicated situation as a result of slowing growth, structural adjustments in the economy and policies to close old capacity, he warned.

China has around 300 million tonnes of surplus steel output capacity, equivalent to nearly twice the output of the European last year, according to the official.

The CISA predicted imports of iron ore will increase 6 percent in 2014 to 870 million tonnes in 2014. The increase was 4.0 percent lower than 10.2 percent in the previous year.

Domestic steel production, meanwhile, is projected to reach 810 million tonnes this year, a growth of roughly 3 percent. That compared with a demand growth of 3.2 percent, at 715 million tonnes, said the CISA.

China has already started a clean-off of old and inefficient capacity, with Hebei province taking the lead. As requested by the provincial government, the government of Tangshang city where steel production is intense, is on the way to reduce 40 million tonnes of capacity in five years.

The resettlement of staff is one of the challenges facing up to local governments, according to Li. He estimated over 100,000 workers will have to find new jobs in the period.

Shaky debt in the sector poses another threat. The debt ratio may average at about 70 percent, and the aggregate liability in the entire sector could be well above 2 trillion yuan, Li said.

 

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