The government will curb steel output on the grounds of weak demand and overproduction, reported the 21st Century Business Herald yesterday.
The newspaper stated that the Ministry of Industry and Information Technology (MIIT) issued an urgent notification to the steel industry last week, calling for a curb in overproduction. MIIT was also reported as asking for cooperation from commercial banks to cut or stop loans to overproducing steelmakers.
“Having received the notification, China Iron and Steel Association (CISA) is coordinating with MIIT and the National Reform and Development Commission to do market research,” said Shan Shanghua, secretary of CISA.
According to the report, MIIT stated that only 4.7 billion tons of steel is needed this year. Overcapacity against domestic and overseas demand stands at 25 to 30 percent.
The CISA is in the process of setting production limits for steel producers on products such as hot rolled plate and cold rolled sheet, according to Shan.
Steel prices have been on the rise since April. Earlier this month, CISA's steel price index reached 148.51, up 4.36 percent from the end of March. The wire rod price index hit 155.57 and steel bar price index 148.19, up 6.64 and 3.24 percent respectively over the same period.
Steel futures on the Shanghai exchange have also risen. The price for September steel bar contracts climbed from 3,549 ($520.38) in March to an average close of 3,645 yuan ($534.46) this month and settled at 3,639 yuan ($533.58) yesterday.
The rebounding signals fueled an impulse expansion in production. MIIT stated that such blind expansion could lead to a severe oversupply.
“The industry has not truly recovered,” said Shan. He explained that the real estate and machinery industries have not been revived and that it would be dangerous to expand production under such circumstances.
Customs data revealed that the country only managed to export 1.41 million tons last month, down 70.5 percent year on year.
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