Chinese steel mills to reduce production as prices decline

注：本人Google Reader Shared Item 已迁移到 http://www.google.com/reader/shared/12686829022287849471


Tumbling steel prices and high production costs are forcing Chinese steel mills to cut production, but analysts were skeptical the highly fragmented industry will coordinate its response to weak demand and prices.

Separately, the chief executive of South Korean steelmaker Posco said rising raw-materials prices, excess capacity and environmental concerns are among the biggest challenges facing the global steel industry.

China's Shougang Corp., Hebei Iron & Steel Group Co., Anyang Iron & Steel Group Co. and Shandong Iron & Steel Group Co. agreed to cut production by 20%, market participants said Tuesday. The decision was formalized at a meeting of mill representatives last week, the people said. Together, the mills produced about 77 million tons of crude steel last year, accounting for 16% of China's total steel output. A Shougang official said the company was still drafting the plan and couldn't provide details.

Steel prices in China have fallen more than 20% from record highs in early June, mainly because of shrinking demand. Prices of some products, such as hot-rolled coil, have fallen below the cost of production for many mills, traders said.

Some small producers in China began cutting output in August.

"Sales are slowing, and stockpiles are high, so an output cut is a reasonable choice," said Xu Xiangchun, an analyst with steel-consulting firm Mysteel. The fight for market share in the fragmented industry could make mills reluctant to cut output, however.

In Washington, Posco CEO Lee Ku-taek said that as economic uncertainty looms, the steel industry should prepare for capacity outstripping demand.

"We should prepare for the risk of deep recession, despite the fact that we are in a super-cycle boom that has lasted for several years," Mr. Lee said at the annual conference of the World Steel Association on Monday. "The price of raw materials has increased," and the steel and raw-materials industries should work together to aim for a more closely knit supply chain, he said.

While steel demand fluctuates with economic cycles, "the demand for steel will always remain strong" as more people around the world, especially in Eastern Europe, South America and Asia, seek to "enjoy a higher standard of living," Mr. Lee said. Meanwhile, the center for steel production is shifting to developing countries, which will account for 70% or more of steel production in the near future, he said.