Economy

Capacity cut to have no big impact on steel prices

(China Daily)
Updated: 2010-08-10 11:16

A worker checks the temperature of a smelter at Ma'anshan Iron & Steel Co Ltd's plant in Ma'anshan, near Nanjing. [Qilai Shen / Bloomberg]

BEIJING - The government-ordered closure of 175 steel mills and 143 ferroalloy producers as part of measures to close plants with outdated facilities across 18 industries will not have a major impact on steel prices, analysts said.

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Zhang Lin, an analyst at Lange Steel Research Center, said prices would not be hit as the total capacity of the facilities to be shut down in the iron and steel industry only equals 32.54 million tons of iron, accounting for 6.48 percent of last year's raw iron production.

Yu Liangui, a senior analyst from Shanghai-based consulting firm Mysteel, said this round of closures of small companies, which are highly polluting and have outdated technology, shows the government's strong determination to restructure the steel industry.

However, Yu said overall iron and steel output won't drop, and is likely to increase by 20 to 30 million tons from a year earlier.

"The closures don't necessarily mean a fall in total capacity since China's rapidly developing economy has a big demand for the iron and steel products. Therefore, investment in the industry is increasing, and so is production capacity," said Yu.

Large State-owned enterprises in steel industry would benefit more from the closure process, but the final effects still need time to be seen, Zhang with Lange Steel Research Center told China Daily.

"Nobody can predict the accurate trend of the steel market in the second half of the year. The steel price has been unstable for months and it largely depends on the global environment," said Zhang.

Yu believes there will be a prosperous steel market in the following months. "The developing economy will boost the steel market."