July 31, 2013 / 2:48 AM / 6 years ago

UPDATE 1-China steel demand to remain weak, mills to struggle-industry

(Adds quotes, details on new smelters)

BEIJING, July 31 (Reuters) - Chinese steel demand is expected to remain weak in the second half of 2013, the country’s steel association said on Wednesday, putting further pressure on steel mills struggling with falling prices that have pushed them into the red.

The group’s 86 members made a combined loss of 669 million yuan ($109 million) in June, marking the first aggregate loss this year, the China Iron and Steel Association (CISA) said in its second-quarter report.

For the first six months, 35 members were in the red, it said.

“Although the whole sector reported low profits in the first half, demand growth for steel products is slower than output growth,” CISA vice-chairman Zhang Changfu told reporters at a news briefing.

On Monday, the Ministry of Industry and Information Technology said the debt-to-asset ratio of Chinese steel firms reached 69.4 percent in the first five months of this year, up 1.4 percentage points compared with the same period of 2012.

Total debt chalked up by large and mid-sized steel mills between January and May reached 3 trillion yuan, up 6.5 percent from year ago, the report said.

It also said that there was unlikely to be any recovery in demand in the second half of this year as China’s economy slows.

Overcapacity has long been identified as a major challenge facing the sector, with years of rampant and unregulated growth creating a surplus of around 300 million tonnes. However, steel firms have continued to build new facilities this year.

Citing statistics from consultancy Mysteel, the industry ministry said in its sector report that as many as 31 new smelters either went into operation or began construction in the first quarter of 2013 alone, involving a total crude steel capacity of 38 million tonnes.

Chinese steel firms were not expected to cut output to reasonable levels because they were still able to maintain small profit margins. Fear of losing market share and worries about banks cutting back credit would also keep production at high levels. ($1 = 6.1317 Chinese yuan) (Reporting by David Stanway; Editing by Richard Pullin)

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