Banks told to tighten lending to outdated steel producers

Beijing has asked banks to cut loans to steel mills operating with outdated facilities and those adding production without real demand, as part of its efforts to rein in overcapacity.

In a recent notice sent to local governments, steel industry and trading bodies and large steel mills, the Ministry of Industry and Information Technology also urged big players to limit output, especially of products with a serious supply glut.

The local authorities should speed up closures of outdated facilities and ask commercial banks to curb lending to mills that contributed to excessive capacity, it said.

'Such measures could help ... as working capital is key to the survival of steel mills, especially those small and medium ones,' said Hu Hao, an analyst at China Everbright Securities.

Mainland steel mills, battered by weak demand and falling steel prices, can churn out about 660 million tonnes a year, but the ministry estimated total demand for domestic consumption and exports at about 462 million tonnes this year.

Production of the mainland's steel industry, the world's biggest, had been growing too fast without real demand, especially in flat products, the ministry said.

In the first quarter, mainland mills produced 127 million tonnes of crude steel, up 14 per cent from a year earlier, accounting for 48 per cent of the world's total.