Chinese Iron and Steel Association warns of worsening oversupply in 4th qtr.
AMM

Published: Nov 4 2009 4:424PM

SHANGHAI, China -- China's steel oversupply may worsen in the fourth quarter and into next year as the market weakens, according to the China Iron and Steel Association (Cisa).

"We can never be blindly optimistic regarding the steel sector in the fourth quarter, due to consideration that the glut (of steel) may further deepen," the association said on its Web site.

"As inventories in the market and at mills have been rising, domestic steel prices may further slide, company profits will fall, more mills will become loss-making and the steel industry will face a more difficult business environment in the fourth quarter and early next year," Cisa said.

The industry association, which represents mills producing the majority of the country's steel, warned that oversupply would be exacerbated if raw steel output exceeds 550 million tonnes this year-something that many in the market think is a foregone conclusion.

During the first nine months of 2009 China's raw steel output reached 420 million tonnes, up 7.5 percent year on year, according to the national statistics bureau. This works out to an annualized output of 562 million tonnes.

China's steel capacity will "definitely" surpass 700 million tonnes "soon," Xu Lejiang, chairman of China's biggest mill Baosteel Group Corp. Ltd., told the state-owned People's Daily newspaper on Wednesday.

China's steel capacity is put at around 600 million tonnes per year, with another 58 million tonnes or so under construction.

Chinese steel demand has been increasing this year thanks to government stimulus efforts, but rising production and imports have pushed supply beyond demand, Cisa said