China Must Control Steel Output Amid Weak Demand, Grouping Says

China, the world’s biggest steel producer and user, must regulate output as profit for mills declines amid high input costs and low demand and product prices, an industry grouping said.

“The winter for the steel industry has come -- we will have to control output and watch for high inventory,” Zhang Changfu, general secretary of the China Iron and Steel Association, told reporters today in Beijing. “There’s no sign the weak demand for steel products will change. Major steel users such as property, auto, shipbuilding and infrastructure have all slowed their growth or even declined.”

China boosted steel output to a record last month as new plants increased production. The country’s gross domestic product growth slowed to 8.1 percent in the first quarter as exports and domestic demand cooled, putting pressure on Premier Wen Jiabao to loosen policy further and shore up expansion in the world’s second-biggest economy.

Crude-steel output climbed 3.9 percent to 61.58 million metric tons in March from a year earlier, according to the National Bureau of Statistics. China’s steel capacity may exceed 900 million metric tons by the end of this year from 850 million tons in 2011, researcher Custeel.com analyst Hu Zhengwu said last week. Output may rise to about 720 million tons this year, he said.

“The inventory of five major steel products at 26 steel markets nationwide was 17.89 million tons, up 39 percent from the beginning of this year,” Zhang said. The trend of rising input costs is unlikely to reverse in the short term as “the companies’ funding costs, iron ore price, labor, energy and environmental protection investments are all rising,” he said.

Iron Ore Supply

The association’s latest survey of major Chinese steel mills showed they collectively had a loss of more than 1 billion yuan ($159 million) in the first quarter, compared with a profit of 25.8 billion yuan a year earlier.

The current situation in the steel industry will affect the upstream raw materials market, he said.

“The fundamentals of the iron ore market are changing, with demand growth slowing but supply growth accelerating,” Zhang said. China’s iron ore production is rising and was enough to produce the additional steel last year.

China now has more than 100 million tons of iron ore at ports, also signaling weak demand and rising supply, he said.

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net; Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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