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November, 24th 2020

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OCT 21

Li Xinchuang: China's steel industry will steadily shrink


Under China's policy to encourage the development of high-quality steel, China's steel production will steadily decline after reaching its current peak levels. So said Li Xinchuang, Vice President of the China Iron and Steel Association (CISA), at the Kallanish Asia Steel Markets virtual conference on Wednesday. Total output will remain at a relatively high level for many years, however, he added.

The strong 2020 recovery in demand has led to a short-term shortfall in supply in the Chinese steel market, observed Li Xinchuang, who is also Secretary of the Party Committee of the China Metallurgical Industry Planning and Research Institute (MPI). China has therefore become a net steel importer in the first half of this year. But this situation will be corrected by the end of this year, and China will resume its role as a net exporter, he believes.

With the recovery of steel production, steel mill inventories have increased and are now at very high levels, making it difficult for spot market prices to strengthen. From January to August this year, the sales profitability of CISA member steel companies was only 3.79% as high inventories, imports and raw materials prices squeezed margins despite a surge in demand.

Chinese steel companies have been burdened by the need to invest to upgrade equipment in order to meet ultra-low emissions requirements, Li Xinchuang added. Some of these steel plants went bankrupt because they could not afford these investments. For the Chinese steel industry, upgrading also means centralising scattered companies, and large companies need to continue to merge to increase the concentration rate.

Baowu Group, now the world's largest steel company, has successively acquired companies such as Chongqing Iron and Steel, Maanshan Iron and Steel, and Taiyuan Iron and Steel. Li Xinchuang, speaking from Anshan, would not name which mills Baowu was still targeting, but did not dismiss reports that Anshan Iron and Steel (Angang) was a target.