February 25, 2014 / 4:16 AM / in 4 years

UPDATE 1-China's steel sector troubles can't be solved easily - CISA

* China has around 300 mln T of surplus steel output capacity

* China iron ore imports seen up 6 pct in 2014 vs 10.2 pct rise in 2013 (Adds CISA executive’s quotes, details from CUsteel report)

By David Stanway

BEIJING, Feb 25 (Reuters) - China’s steel industry will not see a quick end to its troubles as overcapacity has reached staggering proportions and structural adjustments to the economy have complicated the sector’s situation, the nation’s top steel association said.

The world’s largest steel industry has been struggling with overcapacity for years, causing mills to suffer razor thin margins and saddling them with debt.

While giant iron ore producers are banking on continued growth in Chinese steel production and consumption to justify their massive expansion plans, Beijing is anxiously trying to curb production growth amid fears that persistent losses among mills could spark a collapse in the heavily indebted sector.

Li Xinchuang, Executive Vice Secretary-General of the China Iron & Steel Association (CISA), said overcapacity in the sector was “probably beyond our imagination” and added that 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.

However, demand was still rising steadily, which, combined with the desire to gain market share, has prompted mills to continue adding capacity.

China has around 300 million tonnes of surplus steel output capacity, equivalent to nearly twice the output of the European Union last year. Still, mills have continued to expand, adding new capacity of 69.2 million tonnes in 2013, according to a report by consultancy CUsteel earlier in February.

“These are problems we cannot solve quickly,” Li said at an industry conference on Tuesday.

Iron ore imports by the world’s top buyer is expected to reach 870 million tonnes in 2014, with growth decelerating by four percentage points from last year’s 10.2 percent, Li said.

CISA has forecast China’s annual steel output growth to slow in 2014 to around 3 percent to 810 million tonnes.

Steel product demand is expected to rise 3.2 percent to 715 million tonnes this year, Li said.

Despite poor sector profits and an overall slowdown in economic growth, Chinese crude steel output grew 7.54 percent last year to 779 million tonnes, amounting to 48.5 percent of total global production.

China’s steel production capacity stood at about 1.04 billion tonnes in 2013, according to the report by CUsteel. (Editing by Paul Tait and Muralikumar Anantharaman)

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