China’s private steel mills on a profit roll as prices rebound
But buoyant returns could complicate Beijing’s push to cut excess capacity, analyst says
Profits nearly tripled at private steel mills in the industry’s mainland heartland in the first seven months, state-run Xinhua reported on Sunday.
Analysts said the rising profitability of steel plants in Hebei province, which has more steel capacity than Japan and the United States combined, could complicate the central government’s efforts to shrink the industry further.
The central government is pushing the industry to cut excess capacity but while state-owned mills might comply with demands to trim output, plants backed by local governments and private businesses will keep production lines going if there are profits to make.
Private steel mills in the province reported 17.1 billion yuan (HK$19.8 billion) in combined profits over the seven months, up 283 per cent from a year earlier, Xinhua reported, quoting data from the provincial steel industry association.
Of the 78 steel mills covered by the association’s survey, 63 were profitable during the period, compared with more than 50 over the same time in 2015.
Hebei’s most profitable producer was Delong Steel, which made 347 yuan in profit for every tonne of steel produced, Xinhua reported.
Delong’s Singapore-listed holding company reported that the company’s gross profits increased 313 per cent year on year in the first half.
Jinxi Iron and Steel Group, another major steelmaker in Hebei, made 1.38 billion yuan in profit in the first seven months, according to Xinhua.
Hebei Metallurgy Industry Association vice-chairman Song Jijun said a rebound in steel prices was the main reason for the improved profits.
Hengtai Futures chief economist Jiang Mingde said Beijing’s challenge now was to balance overall short-term growth with the longer-term goal of cutting capacity.
“It remains to be seen how China will press ahead with its drive to cut overcapacity and handle possible resistance from steel mills that may keep rolling as they sniff profits,” Jiang said.
China has promised to reduce crude steel capacity by up to 50 million tonnes by 2020, but the cutbacks are already behind schedule.
People’s Daily, a Communist Party mouthpiece, reported last month that in the first seven months, only 47 per cent of the year’s targeted steel cuts had been met. Washington and Brussels have complained to Beijing about unbridled steel output. During the Group of 20 summit in Hangzhou earlier this month, European Commission President Jean-Claude Juncker pressed Beijing to address its steel overcapacity amid the flood of inexpensive steel products from China.