Corus left shoulder or the foothills?

China: Top planner sees huge overcapacity in steel, aluminium industry
Source: Purchasing

China has issued new official estimates of enormous overcapacity in steelmaking, supporting earlier forecasts of glut in 2006 by a think-tank attached to the cabinet. Upshot: "It's pretty likely we'll see more Chinese steel in the U.S. market," says Michelle Applebaum, an independent steel industry analyst in Chicago. "China is so big and is trying to match production growth with consumption" – which the world now knows isn't happening.

China's annual steel capacity hit approximately 470 million metric tons by the end of 2005, up 10.6% from the end of 2004, according to Ma Kai, head of the National Development and Reform Commission, the country's top economic planner. Since the commission chief's demand estimate for 2005 published in the official People's Daily newspaper is only about 350 million metric tons, the implied capacity surplus was about 120 million metric tons last year.

Earlier, the Development Research Center put 2006 surplus production in excess of 116.5 million metric tons. China's steel industry association had dismissed that earlier forecast as "rubbish," saying 2006 output of 380 million metric tons would be balanced by demand. But then, Ma tells a national economic conference in December that steel production capacity would reach 600 million metric tons if all the plants under construction or planned were included. And, since his demand estimate for 2006 is 380 million metric tons, his projected surplus remains at 120 million metric tons.

That's why the government has imposed a temporary ban on steel plant construction, Ma says. The official adds that updated macroeconomic planning shows the country has too many plants making aluminium and coke-and probably for making copper, as well.

Ma tells the conference that the aluminium industry's annual capacity had reached 10.3 million metric tons, of which 2.6 million metric tons of capacity was idle in 2005. He is concerned about a glut since aluminium-smelting companies are building an additional 1.12 million metric tons of capacity. (China Nonferrous Metals Industry Association says the industry is likely to have primary aluminium production of 8.5 million metric tons this year. That would leave 1.8 million metric tons of capacity idle – before factoring in the capacity of the new plants coming onstream.)

The country's annual coke output capacity, 300 million metric tons, had already exceeded demand by 100 million metric tons, says Ma, but the industry is building an additional 30 million metric tons and planning yet another 30 million metric tons. Coke is coal baked for use as the carbon additive in blast furnace steelmaking.