Posted on 02 Feb 2016
Steel production in China will extend declines this year as the country’s top leadership has endorsed a concerted push to cut back on overcapacity in the country that accounts for half of global supply, according to the head of Cliffs Natural Resources Inc.
“If the central government has said they want 100 to 150 million tons of steel capacity shut down, they may not get that much but I’m sure they’ll get some,” Lourenco Goncalves, chief executive officer of the largest U.S. iron ore producer, said in an interview. “It’s a decision and it’s a task force led by the Premier Li Keqiang, who’s the number-two guy.”
China’s leaders have vowed to reduce excess capacity in state enterprises including steel even as they battle the slowest growth in a quarter century, announcing targets last month to shutter more factories and help workers cope with layoffs. The excess supply of steel from China has spurred a global glut, hurting prices and devastating profits for mills from Europe to the U.S. Cliffs’ operations include mines in Australia that ship ore to customers in Asia.
“China has been acting during the last few weeks a lot more responsibly, at least talking a lot more responsibly, about what’s going on,” Goncalves said by phone on Monday. “For the foreseeable future, steel production in China will continue to stabilize and trend down.”
As China’s economy expanded 6.9 percent last year, the slowest pace since 1990, crude-steel supply fell 2.3 percent to about 804 million tons, according to official data. Output will drop below 800 million tons this year as demand sinks further and mills face stiffer opposition to exports, Goncalves said.
Declining production of steel in China will reduce demand for iron ore, which also faces oversupply after miners including BHP Billiton Ltd. and Rio Tinto Group in Australia and Brazil’s Vale SA boosted low-cost output to defend market share. Ore with 62 percent content delivered to Qingdao was at $43.02 a dry ton on Monday, according to Metal Bulletin Ltd. Prices are 1.3 percent lower this year after a 39 percent slump in 2015.
