Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

China Steelmakers Confront Grim 'New Reality' Prices Are Plummeting as Capacity Far Outstrips Demand

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

China Steelmakers Confront Grim 'New Reality' Prices Are Plummeting as Capacity Far Outstrips Demand

Article excerpt

Last weekend, the best place to observe China's wrenching effort to retool its growth model and economy might have been the Beijing Landmark Towers, a rundown government-owned hotel where rooms could be had for around $70.

For delegates to the eighth annual China International Metal Recycling Forum, the setting was a stark comedown from last year, when the same event took place in a sparkling new Le Meridien in Chongqing, gateway to western China. Instead of a lavish affair for 500 wealthy steel and recycling executives, this weekend's conference hosted maybe 300 decidedly downbeat industry figures, all focused on what several speakers referred to as a "new reality."

The numbers tell the story. According to Zhu Jimin, executive vice-chairman of the state-run China Iron and Steel Association, annual production capacity for China's steel industry has grown by an astonishing 200 million tons since late 2012, to 1.1 billion tons today. (By contrast, the entire U.S. steel industry produced only 87 million tons in 2013.) Yet first half domestic consumption of steel stands at 376.1 million tons, up an anemic 0.4 percent over the same period last year. Steel exports are growing but at the expense of "increasing trade conflicts and constant trade remedy investigations."

The result, as every conference attendee was well aware, is massive overcapacity. Prices continue to plummet. During the first half of 2014 they were down 8.79 percent year-on-year, despite the strong export numbers, putting many large, state-subsidized businesses in serious financial peril.

This is a familiar problem for China's policy makers, from President Xi Jinping on down. Last October, China's ruling State Council singled out steel, flat glass, cement, aluminum and shipbuilding as sectors that had developed dangerous levels of overcapacity, and in March, they announced (among other measures) that they intended to trim 27 million tons of steel production, in addition to the 10. …

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