Manufacturing glut at home prompts steel mills to look abroad as profit margins shrink rapidly, reports Bloomberg.

Tangshan Donghua Steel Enterprise Group Co was so eager for new customers overseas that it turned to cold-calling manufacturers and tried hawking metal on the e-commerce website run by Alibaba Group Holdings Ltd.

A glut in the world's biggest steel-making country means that prices for basic products like rebar used in construction have collapsed, so Tangshan Donghua is targeting buyers outside China who pay more. The company now ships as much as 40 percent of its output everywhere from Southeast Asia to South America to the Middle East, and wants to expand exports even further.

"We don't make any profit selling here," Wei Guotong, assistant to Tangshan Donghua's general manager, said in an interview on Sept 22 at the company's mill about 170 kilometers east of Beijing. "If we sell overseas, we can at least make some money, although not much."

After the Chinese steel industry expanded by 50 percent since 2010 to keep up with surging demand, mills can produce 210 million metric tons more than the market needs and one-quarter of the capacity sits idle, according to data compiled by Bloomberg Intelligence. With economic growth slowing, producers are reluctant to close plants, forcing a record pace of sales overseas, where competitors accuse China of dumping.

China, which produces almost half the world's steel, shipped 52.4 million tons in the first eight months of this year, up 36 percent from a year earlier and more than the 42.5 million exported over the same period in 2007, when sales were at an all-time high, government data show.

By year-end, the 2014 total may reach 85 million tons, according to Hu Yanping, an analyst at custeel.com, a researcher in Beijing. That's 44 percent more than the 2007 record of 59 million tons.

It is not hard to see why Chinese producers are looking abroad. The price of steel reinforcement bars, known as rebar, waiting to load in Tangshan fell 3.5 percent to 2,619 yuan ($426.50) a ton on Sept 22, triggering a trading halt on the Shanghai Futures Exchange. Rebar for January delivery fell last Friday to the lowest close for most-active contract since trading began in 2009.

"Steel mills and traders have seen sales contract in September," Macquarie Securities Ltd analysts including Graeme Train and Angela Bi in Shanghai wrote in a report last week. "There are now expectations of production cuts. This does not bode well for near-term raw-material demand and prices."

Local governments resist attempts to close unprofitable mills to sustain employment levels and tax revenues, prolonging the glut, said Vanessa Lau, an analyst at Sanford C. Bernstein & Co in Hong Kong. "Even after a few rather depressed years in terms of profitability, we still haven't seen large-scale steel curtailments," she said.

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