Steel giants refuse to cut output despite price plunge

10:47, October 13, 2009      

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China's steel prices have dropped around 1000 yuan per ton from its peak in August. However, most domestic steel producers say that they won't reduce output as long as they are still profitable.

Wu Chunxi, an advisor at China Iron and Steel Association (CISA), pointed out that judging from the country's steel output in September, China's total steel output in 2009 may top 618 million tons. In the first eight months this year, the apparent consumption of steel has increased by 16 percent.

If the steel mills refuse to cut production, the growth of apparent consumption of steel is expected to exceed 100 million tons. "That is too much for China's domestic steel market," said Wu.

In 2009, the overall annual investment in China's steel industry will grow 3 percent to 310 billion yuan (around 45.43 billion U.S. dollars), while the figure of the previous year was only 2.3 percent. The huge investment this year will increase domestic steel mills' crude steel capacity by at least 50 million tons, indicating that China's crude steel output will top 710 million tons in 2010.

Deng Qilin, president of Wuhan Iron & Steel Group, said that the company has cut its output by 17 percent in the first half this year, but has no output reduction plan in the second half.

Li Xiaowei, Chairman of Valin Steel Tube and Wire, one of China's top 10 steel makers, declined the possibility to cut output in the forth quarter of 2009. Li said that they would not reduce output as long as marginal utility existed despite low profits.

Gu Jianguo, Chairman of Maanshan Iron & Steel Co., Ltd. also said that the company would not cut output, unless they see negative profit.

International Iron and Steel Institute (IISI) yesterday predicted that China's demand for steel might grow by 19 percent this year. But as the effect of the Chinese government's stimulus plan weakens, the demand growth rate is expected to fall to 5 percent.

However, Lakshmi Mittal, chairman and CEO of ArcelorMittal, a Luxembourg-based steel titan, said that the projection for a 5 percent increase in China's steel demand for 2010 was a "surprise" given the expected growth of its economy.

By People's Daily Online
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