Steel overcapacity intensifies price volatility in China: CISA

BEIJING (Scrap Monster): The excess capacity remained an outstanding problem in the domestic steel industry last year, according to a report released by The People's Bank of China.

According to the data, the number of steelmakers losing money last year was increasing. The industry was still plagued by several structural problems such as low-end product mix, fragmented industry layout and large-scale of outmoded facilities.

Steel price movements became more volatile due to the gradual release of steel capacity and slowing downstream demand. In late 2011, the steel price index compiled by the China Iron and Steel Association (CISA) declined by 6.11 percent year-on-year. By category, the long product index was down by 6.13 percent and the flat-rolled index was down by 6.61 percent.

Last year, the average CIF price of imported iron ore was $163.8 a ton, an increase of 28.1 percent from 2010, which meant that cost domestic steelmakers approximately $25 billion more in securing foreign ore. In the first eleven months, medium and large mills generated a total of 85.3 billion yuan in profit, up 8.07 percent.

The sector is in a crucial period of transition highlighting low growth rate and low profit margin. According to the latest national Five-Year Plan for the steel industry, the sector will strictly control capacity expansion and speed up the elimination of outmoded capacity, continue to boost mergers and acquisitions for the creation of a more centralized industry and enhance product quality driven by innovation and technical updating.