China’s capacity investments a threat for steel industry
The new capacity
investments of
China's highly scattered steel industry are expected to push the country's steel
production capacity to close to half a billion metric tons by the end of 2006.
A survey of 474 steel mills carried out by the
China Iron & Steel Association (CISA) suggests that the domestic steel
production capacity of
China will increase to 490 million metric tons by the end of next year.
The report indicates that the
production capacity of
China was 420 million metric tons in 2004.
China produced 300 million metric tons last year, representing a 72 percent utilization rate.
The new figures raised concerns about the future of
China's domestic steel industry. Analysts will almost certainly revise their forecasts on future steel prices downwards in light of the news.
Since September 2004,
China has, for the most part, been a net steel exporter; only this past July did imports exceed exports.
According to CISA,
China's steel demand grew at a rate of 10 percent per annum during the first quarter of 2005, but the growth rate increased to 20 percent in the last four months. This sudden spurt can only be explained by the strong growth in
manufacturing sector.
However, Beijing sees the rapidly increasing capacity as a threat. The government it trying to combat such expansion by encouraging mergers in the steel industry.