* Govt capacity controls, market forces forcing steel
* Big mills no longer obsessed with expansion
* Peak production expected soon
By David Stanway
BEIJING, Mar 6 Chinese steel output, which hit
779 million tonnes last year, is now close to its peak, with the
market weakening and the government now determined to tackle a
capacity glut responsible for mounting debts and heavy
pollution, executives said.
Big miners like Rio Tinto , BHP Billiton
and Vale have banked on continued
growth in steel demand from China, which buys around two-thirds
of the world's seaborne iron ore to feed a steel sector
responsible for nearly half of the world's total output.
But the steel industry has borne the brunt of an economic
slowdown as well as a concerted effort to tackle smog, and Zhang
Wuzong, delegate at the National People's Congress (NPC) and
chairman of private steelmaker Shandong Shiheng Special Steel
said there was no room for further expansion.
"You can basically say that Chinese steel output has reached
a peak," he told Reuters.
Deng Qilin, chairman of Wuhan Iron and Steel (Wugang)
, China's fourth biggest steel producer, and an NPC
delegate, also said on Thursday that capacity was now more than
enough, with supply heavily outstripping demand and failing
mills under pressure from both the government and the market.
"I can tell you that the steel industry, globally and in
China, is facing a big, big imbalance of supply and demand - it
is facing serious overcapacity and if we don't control it the
industry at home and overseas will fall further into a deep
winter," he said.
"Expanding further is meaningless - if you are making
losses, having more capacity will lead to even more losses."
Deng said the bigger steel firms, including Wugang, have
been determined since the 2008 global financial crisis to end
their obsession with expansion and focus instead on improving
competitiveness. Better government regulation, tougher pollution
controls and a less forgiving market will also help stop the
"disorderly" expansion of smaller, private players.
"All the measures to eliminate capacity and control output
are already in place," he said. "I think it will take around
five years or more."
AT A PEAK?
Iron ore suppliers attending an industry conference in
Beijing last week said they remained confident in the potential
for further growth in China's steel sector, with David Joyce,
Rio Tinto's managing director for project development, saying it
"is still a long way from peaking".
Despite all the talk of crisis in the sector, crude steel
production is still expected to grow by around 3 percent this
year, down from 7.54 percent in 2013, and the top five global
iron ore producers are expected to raise total supply capacity
by 126 million tonnes this year.
But Jiang Kejun, senior researcher at the Energy Research
Institute, a government think-tank, said last month that 650
million tonnes of annual steel production would be more than
enough to meet domestic demand in the coming years. He said
production would fall to 610 million tonnes by 2020, 22 percent
lower than in 2013, and would then decline steadily thereafter.
Li Xinchuang, vice-secretary general of the China Iron and
Steel Association, speaking last week, said such a rapid decline
was unlikely, but he said China's total steel output would peak
at about 850 million tonnes. With total production already
expected to rise to 810 million tonnes this year, that would
allow little room for further growth.
A peaking of Chinese steel output could be beneficial for
rival steelmakers such as Japan's Nippon Steel & Sumitomo Metal
Corp who have been hurt by China's capacity growth.
Zhang of Shiheng Special Steel said that it was hard to put
a specific figure on China's peak steel production, but even
relatively high economic growth would no longer be a big driver
of steel demand.
"If the rate of economic growth can be adjusted properly, it
can be sustained, but it won't be growth in steel mills, or
growth in polluting enterprises," he said.
(Additional reporting by Kathy Chen; Editing by Muralikumar