China's struggling steel industry plans to eliminate 20 per cent of its production growth within two years to halt sharp losses and correct over-capacity in the sector. Luo Bingsheng, executive vice-chairman of China Iron & Steel Association, told media yesterday that this year's output growth is expected to slow substantially from last year, Xinhua reported. 'Growth of 20 per cent this year is impossible, 10 per cent is more likely as production enters a more stable stage,' he said. Last year's crude steel output surged 24.56 per cent to 349.36 million tonnes, the association said. China accounts for 30 per cent of the world's steel output, driving up international iron ore and coking coal prices and contributing to worsening pollution. 'According to government industry planning, steel blast furnaces of less than 200 cubic metres should be shut down by the end of the year while those of less than 300 cubic metres should be closed by the end of next year,' Mr Luo was quoted as saying. About 100 million tonnes of outmoded capacity is earmarked for closure, nearly 20 per cent of the industry's estimated capacity of 470 million tonnes. The biggest 66 steel producers posted a 10.62 per cent drop in realised profits last year to 76.86 billion yuan, despite a 16.42 per cent growth in turnover to 1.17 trillion yuan, according to the association. Industry analysts estimated some 80 per cent of the 66 producers racked up losses in the last quarter of last year when product prices saw some of the sharpest declines of the year. At the end of December, the composite steel product price index compiled by the association was 6.37 per cent lower than that at the end of November and 31.92 per cent lower than the peak registered in March. Beijing Metal Consulting chief executive Xu Zhongbo said over-supply, widespread losses and strict government control on new project approvals would stop any major capacity expansion this year. Lower-end long products - used in construction projects - have been in over-supply for three years while higher-end flat products used to make cars and appliances had reached over-capacity by last October, he added. 'This year will be the most difficult year for the industry in recent history with both long and flat products operations unprofitable,' Mr Xu said. The government is encouraging mergers and acquisitions to restructure small-scale producers which tend to have outdated equipment and higher operating costs. Last year saw Anshan Iron & Steel strike a deal to merge with Benxi Iron & Steel, while Wuhan Iron & Steel agreed to merge with Echeng Iron & Steel and Liuzhou Iron & Steel, and Shougang Group and Tangshan Iron & Steel entered into an agreement. However, the integration process will take years to complete since it takes time for local governments - owners of most small and medium-sized steel companies - to sort out post-merger issues such as loss of local taxation revenues and staff redundancy with the central government which owns the largest steel firms. 'I think more mergers and acquisitions will happen next year and 2008 than this year, as more producers will have sustained a long period of losses,' Mr Xu said.
