China’s steelmakers need to press ahead with capacity cutting and deleveraging, despite the sector’s strong performance in the first quarter of the year, an expert said.
Gu Jianguo, executive vice-chairman of the China Iron and Steel Association, said the entire industry needs to remain sober about the latest favorable results, as there is still not a solid foundation for the sector to realize sustainable returns.
Steel companies should continue to avoid “near-sighted behavior”, and avoid expanding output blindly, Gu said at a news conference on April 26.
Industry data showed that steelmakers’ output and profits increased in the first three months.
Between January and March, total crude steel output grew by 4.6 percent year-on-year, with the average daily output in March reaching a record high, according to the CISA.
In the same period, combined profits among CISA’s members amounted to 23.3 billion yuan ($3.4 billion), compared with losses of 8.75 billion yuan last year.
The three-month statistics, however, are insufficient to forecast the trend for the entire year, Gu said. “More observations are necessary on steel demand and consumption.”
Besides, falling exports and fluctuations in prices are two problems facing the industry, Gu added.
Liu Zhenjiang, CISA’s secretary-general, said the steel mills, in addition to further slashing excessive capacity, should also attach importance to deleveraging to avoid debt problems.
China set a goal of reducing steel capacity by 50 million metric tons in 2017, and will continue its drive in 2018, according to the National Development and Reform Commission, the country’s top economic regulator.
The target was built on the progress China made in 2016, when the country slashed steel output by 65 million tons.
Zhang Yingying, an analyst at Beijing-based JLC Network Technology Co Ltd, said the new round of capacity cuts is likely to cause supplies to run slightly low in provinces such as Hebei, Shandong and Jiangsu, major steel production bases.
“Prices might decline correspondingly in a small range within a short period,” she added.
The country’s annual steel output stood at 1.1 billion tons, with an apparent consumption of 800 million tons a year, according to the National Bureau of Statistics.