Steel boss sounds dire warning for Chinese mills

A senior figure in the Chinese steel industry says the market is oversupplied and a wave of small and large steel mills in the Asian powerhouse will close down over the next few years.

Reuters reports Zhang Wuzong, chairman of the privately-owned Shandong Shiheng Steel Group, said decades of 'blind' expansion would soon take its tool on Chinese steelmakers.

 

“The Chinese market is now oversupplied,” he said.

 

“It will take time but I believe a lot of the backward private enterprises will be closed. I also believe there will be some state-owned enterprises that will be eliminated too, including some of the big ones.”

 

Wuzong said it was a “certainty” that a number of steel makers would shut down, and 'survival of the fittest' was the only way to move forward.

 

According to Reuters profits in China's steel sector fell 98 per cent last year, and the country's current capacity of 900 million tonnes of crude steel is far higher than the official output of 716mt.

 

Earlier this year the Chinese Government said it would implement new policies to encourage consolidation in the sector, with the aim of bringing 60 per cent of capacity under control of the top 10 mills by 2015.

 

Despite Wuzong's dire predictions, the spot price for iron ore has soared to new highs over the last few months, but analysts predict demand to soften as the year progresses.

 

Over the long term miners have expressed confidence in demand from China, and Rio Tinto expects Chinese steel production to peak around 2030.

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