* Apparent consumption growth lower than output growth in H1
* Debt, financing still problematic, but under control
* Overcapacity policies still not being fully implemented
(Adds quotes, background)
By David Stanway
BEIJING, Aug 1 China's apparent steel demand in
the first six months of 2014 rose just 0.4 percent from a year
earlier, the country's steel association said on Friday,
significantly lagging a growth in output as chronic overcapacity
continued to hurt the sector.
This adds more pressure on the bloated steel industry in
China, the world's top producer of the metal, which is battling
weak margins at a time when a price slump and tight credit have
already put hundreds of mills under severe financing stress.
China's apparent crude steel consumption reached 376 million
tonnes in the first half versus a 3 percent rise in actual
production to 412 million, as steel mills pumped out record
volumes despite crippling credit restrictions and a pollution
crackdown, the China Iron and Steel Association (CISA) said.
"The policies are having an effect but they are not yet
fully in place," CISA Secretary General Zhang Changfu said at a
press briefing on Friday. "Eliminating outdated capacity is a
very difficult process."
China has an estimated capacity of more than 1 billion
tonnes. Overproduction has led to a plunge in prices, and the
state has tried to encourage smaller producers to exit the
market by raising environmental costs and restricting credit.
Shanghai rebar steel futures have dropped over 17
percent in 2014, on track for a fifth straight year of decline.
CISA's secretary general was, however, optimistic that while
overall growth would slow, there was room for a further rise in
China's steel demand.
His deputy, Qu Xiuli, said the sector still faced severe
financial problems but that the worst was over.
"Enterprises have worked very hard on controlling their
inventories, and by June their debt ratio had not increased -
the situation is hard but it is now under control," she said.
CISA said 28.4 percent of large and medium-sized steel mills
made losses in the first half of 2014, down 7.94 percentage
points from a year ago. Profit margins averaged at 0.41 percent
in the first six months of 2014, up 0.23 percentage points.
Inventories held by large steel mills stood at 14.46 million
tonnes by the end of June, the first increase after three months
of decline but down 6 percent from end-March, CISA data showed.
China managed to sell most of its additional steel output in
the first half on overseas markets, with exports up 34 percent
from a year ago to 41 million tonnes.
However, CISA said exports were unlikely to rise further due
to growing trade frictions. Currently there are 12 anti-dumping
investigations against Chinese steelmakers, involving around 2
million tonnes of exported products, the head of CISA market
research, Wang Yingsheng, told the briefing.
FIRMS FLOUT EMISSION STANDARDS
Meanwhile, China is expected to ramp up efforts to curb
overcapacity and pollution in its steel sector.
According to new government guidelines due to go into effect
from August, steel firms that fail to meet emission standards
could be subject to further credit restrictions as well as
punitive power and water prices.
Industry consultancy GTXH.com estimated this week that as
much as two thirds of China's steel firms had not properly
complied with state environmental standards.
CISA's Zhang said he did not know the proportion of steel
firms currently in breach of state rules, but admitted the
problem was widespread.
According to CISA data, environmental costs at Chinese steel
mills stand at an average of 55 yuan per tonne, but top state
firms are spending 110 yuan, and Zhang said work needed to be
done to create a more level playing field.
(Reporting by David Stanway; Writing by Fayen Wong; Editing by