RPT-UPDATE 2-China says steel output has plateaued, as iron ore output grows

Wed May 7, 2014 5:56pm EDT

Related Topics

(Repeats story first published late Wednesday; no change to text)

* Chinese steel mills no longer expanding capacity-CISA

* Chinese mills under pressure, more defaults seen

* Vale sees 240 mln T in additional iron ore capacity in 2014-2015

By Manolo Serapio Jr and Rujun Shen

SINGAPORE, May 7 (Reuters) - China's steel output has plateaued as tougher environmental measures have curbed capacity expansion with mills also pressured by tighter credit, China's steel association said, despite rapid expansion by iron ore miners.

Iron ore prices have fallen more than 20 percent this year due to an expected surplus in global iron supplies and slower demand growth by No. 1 consumer China.

"The urge to expand has been curbed," Wang Xiaoqi, vice president of the China Iron and Steel Association told an industry conference. "Companies are no longer expanding capacity. They are putting an emphasis on environmental protection."

The fight against pollution has led to the shutdown of some steel mills in China, the world's biggest producer of the alloy, where output reached a record 779 million tonnes last year.

Tight credit has also increased costs for steel makers by 22 percent in the first quarter from a year ago, the association has said.

"China's steel industry is faced with great pressure and many trading companies and mills are going for offshore financing to support themselves," Zhang Dianbo, assistant president at Baosteel Group said at the conference.

"There will be more defaults happening but this is not the mainstream," Zhang said when asked if more steel firms will go out of business. Baosteel has forecast China's total crude steel output will rise 3.8 percent in 2014 to 809 million tonnes.

Growing jitters about the financial health of bloated industries in China including steel have prompted many banks to cut lending in these sectors.

"The iron and steel industry has entered a real winter," said Yang Siming, chairman and chief executive of Nanjing Iron and Steel Group.

"There is excessive production capacity, the growth in steel consumption is slacking, companies are losing money and facing tight credit, bankruptcy is emerging," he said.

MINERS UNDAUNTED

But global iron ore miners Vale and BHP Billiton are forging ahead with their expansion plans, confident that China will be able to continue to absorb the additional supply.

"Growth in steel demand has a long way to go before peaking out," said Claudio Alves, global director for marketing and sales at top iron ore miner Vale.

Global iron ore suppliers are expected to bring in additional capacity of a total 240 million tonnes this year and next, said Alves, about a third of China's imports last year.

"Most of this will come from Australia and Brazil and all these tonnages will go to China," he said, adding Vale spends $21-$22 to produce a tonne of iron ore, just a fifth of the current spot price of $106 .IO62-CNI=SI.

Vale is on course to increase annual iron ore output to 450 million tonnes after 2018 from 306 million tonnes last year and third-ranked BHP Billiton is set to increase its annual capacity to up to 270 million tonnes from a forecast 217 million tonnes this year as it pushes ahead with new mine work in Australia.

Globally, BHP sees steel demand growth remaining strong over the next 10 years and to moderate after that.

"We see strong global steel demand to continue to underpin demand for iron ore," said Michiel Hovers, vice president for marketing at BHP. (Reporting by Manolo Serapio Jr. and Rujun Shen; Editing by Muralikumar Anantharaman and Richard Pullin)

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