Chinese Steel Capacity Expansions Continues

Chinese steel producers are ignoring government rules banning capacity expansions, according to the latest research from SBB Research and Consulting. If this trend continues, and local demand does not pick up strongly, then Chinese exports could return to the very high levels previously seen in 2007.

China’s State Council has just reiterated its ban on new capacity expansion projects, stating that no new capacity projects will be approved before the end of 2011. This follows on from a three-year moratorium announced in August 2009. In addition, the country’s top ten steel producers are being targeted by for a 60 percent share of total by 2015.

Despite the 2009 ban, the most recent report from SBB Research & Consulting finds that 31 Chinese steel mills have announced 40 new capacity expansion projects in the country since the beginning of 2010. This includes 9.9 million metric tons/year of iron and crude steel making capacity.

A large proportion of the announced new rolling capacity will be for long products (16.4million metric tons per year), while new hot rolled flat capacity is estimated at 6 million metric tons per year. Furthermore, 23 of the 40 expansion projects announced this year are being carried out by mills that are not amongst the top ten largest producers.

“As with the previous ban, the latest move to curb capacity additions is meaningless in the face of mills continuing to steam ahead with expansion projects”, comments Rafael Halpin, China Analyst at SBB in Shanghai. “This also puts the latest consolidation target into question,” he adds.

“Global overcapacity is currently running at around 300million metric tons per year. This additional new expansion projects in China could well mean much higher exports and depressed global prices in the coming months,” adds Roger Manser, Managing Editor at SBB.