* Industry profits, margins up in Q1 but slipped in March
* Government stepping in to tackle overcapacity
* CISA urges more support to domestic iron ore trading
By David Stanway
BEIJING, April 27 China's steel industry body
warned its members on Saturday to rein in expectations for the
remainder of the year, saying that an anticipated increase in
demand would not be enough to justify big rises in production in
Officials with the China Iron and Steel Association (CISA)
told reporters at a briefing that the government was looking for
new ways to restructure the sector, which was still facing
China's steel industry, the world's biggest, is struggling
with poor margins and weak demand even as it heads into the
April-June peak consumption season. Sluggish sales in China
sent benchmark iron ore prices to their lowest
point in more than five weeks on Friday.
CISA chairman Zhu Jimin said producers should not be misled
by "bright spots", including improvements in downstream sectors
like automobiles, railway construction and shipbuilding.
"Downstream demand will gradually improve, but at the same
time it is difficult to see any relatively big rises in steel
consumption, and the expectations of steel firms should not be
too high, and they should not blindly expand output," he said.
The association, which represents around 80 large- and
medium-sized steel mills, said in a review of the industry over
the first quarter of 2013 that, while overall profits had
improved, the market was increasingly precarious.
Large steel firms earned 2.486 billion yuan ($403.24
million) in the first three months after suffering losses in the
same period last year. In March, profits fell to 267 million
yuan, with margins down to a razor-thin 0.28 percent.
LEVEL PLAYING FIELD
According to industry estimates, total annual crude steel
production capacity in China is approaching 1 billion tonnes,
with mills still expanding even though apparent demand is
predicted to reach just 698 million tonnes this year. CISA
officials called on firms to improve "self-discipline".
"We can put it like this - current steel capacity can
already completely satisfy peak domestic steel consumption and
we should stop all blindly expanding projects," said Li
Xinchuang, CISA's deputy secretary general.
Li said the government was examining ways of tackling the
industry's overcapacity problems, and tougher environmental
measures and technological requirements could be used to try to
ensure smaller firms face the same social responsibilities as
their big state-owned counterparts.
"There is a huge gap between companies that protect the
environment properly and those that don't, with costs per tonne
of steel around 157 yuan higher - this is unfair competition."
CISA also called on steel enterprises to do what they could
to strengthen a domestic iron ore trading platform run by the
China Beijing Mining Exchange (CBMX).
Reuters reported this month that importers were under
instruction to trade at least 500,000 tonnes of iron ore on the
exchange in order to get licensed.
Wang Yingsheng, the head of CISA's market research division,
said it was the responsibility of the China Chamber of Commerce
of Metals Minerals and Chemicals Importers and Exporters
(CCCMMC) rather than CISA to maintain "discipline" among Chinese
iron ore traders, but said CISA supported efforts to boost the
platform and thereby improve price transparency.
Beijing has long complained that pricing power lies with big
iron ore suppliers like Brazil's Vale and Australia's
Rio Tinto and BHP Billiton , even
though two thirds of sea-borne supplies are bought by China.
In a change of emphasis, Wang denied China wanted to improve
its "say" over prices, saying it only wanted a system that
better reflected the market.
"In the long term prices are determined by supply and demand
but, in the short term, there are manipulations from particular
sides. It isn't that we buy a lot and should have more say over
prices - if we stop buying, the prices will come down."