SHANGHAI, Feb 26 (Reuters) - A blind rush back to production by Chinese steel mills has pushed China’s crude steel output back up above the 2008 average, threatening to worsen oversupply and ruin profitability, a top industry official has warned.
“Demand has not yet recovered and there has been no apparent effect from government policies aimed at boosting domestic consumption, but the extra crude steel output from the mills is incredible,” Wu Xichun, honorary chairman of China Iron and Steel Association, told an internal meeting of the body last week.
According to a transcript, Wu said crude steel output in China was expected to top 1.41 million tonnes a day in mid-February, translating into estimated annual production of 517 million tonnes in 2009 if maintained.
That would be more than the 500.48 million tonnes of crude steel that China, the world’s largest steel making country, produced in 2008, despite a collapse in global demand for cars, ships and construction in recent months.
“Downstream orders have recently improved compared with the last quarter, but they have still fallen markedly from a year earlier,” China’s top steelmaker Baosteel (600019.SS) told Reuters in a written reply to questions on Wednesday. [ID:nSHA58038]
The industry body may be expecting production to fall back again, since Luo Bingsheng, vice chairman of the association, said earlier this week that overall 2009 crude steel output was expected to reach 490 million to 500 million tonnes, slightly less than last year. [ID:nPEK314152]
However, China is at risk of oversupply in steel because it has far more capacity than it actually uses. Crude steel capacity reached 660 million tonnes at the end of 2008, senior officials from the association said.
Chinese mills ramped up production in response to high prices in previous years, and were encouraged to do so by government policies that supported investment in higher-value steel making capacity.
Reporting by Alfred Cang; Editing by Keiron Henderson