Posted on 12 Oct 2016
Despite China's avowed efforts to shrink its steelmaking capacity, a bitter divide remains between the country's producers and international competitors swamped by a nonstop flow of Chinese exports.
At the World Steel Association annual meeting Tuesday in Dubai, United Arab Emirates, projections showed that China's demand for steel would fall for a fourth straight year in 2017. But the country's supply glut remains daunting as capacity cutbacks lack urgency.
"China has sent too few delegates for a country that accounts for half of global output," complained Koji Kakigi, president of Japan's JFE Steel. "It feels odd, doesn't it?"
The global steel industry's biggest event ended without participants engaging in a serious discussion on the state of affairs. This owes partly to the Chinese side's noncommittal stance.
Only a few top Chinese executives attended the two-day meeting, although Hesteel Group, the world's second-largest steel producer, did send a representative. Fifth-ranked Baosteel Group -- the parent of Baoshan Iron & Steel -- and smaller Wuhan Iron and Steel Group made headlines recently by announcing plans to merge. But those expecting to see Baosteel Chairman Xu Lejiang were disappointed -- he canceled shortly before the event. So too were participants hoping to gauge the Chinese side's inclination for capacity reductions.
Chinese steel demand is projected to fall 2% on the year to 650 million tons in 2017. By contrast, global demand is seen growing for a second straight year, albeit barely. China has a major effect on the global market, said T. V. Narendran, managing director at India's Tata Steel, warning that the industry still remains in crisis.
The Chinese government recognizes the urgent need to reduce the supply overhang in steel. This week's lurch into bankruptcy by Dongbei Special Steel Group, a serial debt defaulter eking out an existence as a "zombie" company, appears to have been willed by China's leadership. The same is true for the Baosteel-Wuhan merger.
Other developments show the difficulty of engineering a consolidation. Industry watchers had suspected that merger talks were underway between Shougang Group, the world's ninth-largest steelmaker, and Hesteel. Trading in shares of listed unit Beijing Shougang had been halted pending consideration of an "important" matter. But on Sept. 29, the company announced that the matter had been dropped. There is talk of a disagreement over the merger method between the local governments under whose purview the steelmakers fall.
The Chinese government says it aims to cut 100 million tons to 150 million tons of steelmaking capacity -- about a tenth of the country's total -- by 2020. This year is supposed to bring a reduction of 45 million tons. But with small and midsize producers hiking output to fight for market share, China exported steel at a record pace in the first eight months.
Last year's exports topped 110 million tons -- more than Japan's total crude steel output. These heavily discounted flows are undermining prices throughout the global market. Russian and Turkish steel has been driven into Europe, causing pain for ArcelorMittal and other locally based producers.
Japanese steelmakers worry about the potential for a long-term slump. JFE Holdings' steelmaking unit will focus on cutting production costs in middle-grade products, Kakigi said. Steps include efficiency investments in iron ore processing at domestic mills, he indicated. Kobe Steel President Hiroya Kawasaki said his company seeks to avoid price competition by increasing high-grade steel's share of overseas sales.
