Large mills made losses in Q1

According to the China Iron and Steel Association (CISA), China's domestic medium and large-sized mills lost 3.31 billion yuan in the first quarter, due mainly to the fact of oversupply, compared to a total profit of as much as 47.16 billion yuan in the same period of last year. 20, or 34 percent, of the 72 key mills lost money.

Steel output stood at 124.74 million tons in the first quarter, up 1.74 million tons or equal to 517 million tons annually, much higher than the targeted 460 million tons. The increased steel output in the first quarter is the major reason for the losses. China exported 5.14 million tons of steel products, down 50 percent. The diversion of export capacity into domestic market also caused the increased household supply. The production costs have dropped 350 yuan per ton. The prices of domestic and imported iron ore declined 44 percent and 26 percent respectively whereas coking coal was up 12 percent.

CISA honorary president Wu Xichun blamed the increased capacity on small and medium-sized steel producers. "Seventy-two CISA members reduced steel output from an average of 1.14 million tonnes per day to 1.11 million tonnes, but the small and medium-sized companies increased daily production from 290,000 tonnes to 340,000 tonnes," he said. He called for the elimination of companies using outdated technologies.

On the issue of eliminating outdated technology and capacities, the Minister of Environmental Protection noted more should be done to eliminate obsolete capacity in 13 sectors including iron, steel making, ferroalloy, and coke. In 2009 the power, iron making, steel making and papermaking industries will wash out 15 million kilowatts, 10 million tons, six million tons, and 500,000 tons of outdated capacity respectively. The country will install de-sulfurization capacity of more than 50 million kilowatts at coal-fired power stations and 20 gas de-sulfurization machines at mills’ sintering plants, introduce technology and products adaptable to the state conditions that can curb the pollutant of nitrogen oxide, promote a healthy development of de-nitration industry, and increase the usage of clean energy in the car industry.

Baosteel, China’s largest steelmaker, does not see a promising domestic steel market until next year, a stance that is widely seen as a warning to international iron ore suppliers, who have refused to accept mills’ proposals to cut this year’s iron ore contract prices by 40 to 50 percent with a belief that the central government’s four trillion yuan stimulus plan would spur household demand for steel. However, domestic experts feel the government investment plan is not adequate enough to make up for the absence of investment from private sectors and for shrinking demand from the overseas market. They further note it is possible for the industry to go through the worst times this year due to excessive overcapacity.

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