Profits for China’s steel industry will remain small in 2014, says Baosteel

China’s steel industry will continue to see slim profits in 2014, amid an oversupplied domestic market, fierce overseas competition and high costs, according to Baosteel’s chairman.

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“China’s steel demand will continue to see some growth this year, with the urbanisation and steady economy environment. It is estimated that the country’s crude steel output will reach 810 million tonnes in 2014, while apparent steel consumption is expected to rise by 3.1% to 750 million tonnes,” Xu Lejiang, who is also chairman of China Iron & Steel Assn (Cisa), said.

China produced 712 million tonnes of crude steel during the first eleven months of last year, up 7.82% year-on-year. This is an annualized output of 775 million tonnes, according to Xu, who made the comments at a Cisa member meeting over the weekend.

However, the oversupply problem is unlikely to be solved, as the steel industry remains oversubscribed, while demand from downstream sectors may fall due to a slowdown in fixed asset investment, Xu warned.

On the export side, the outlook is not optimistic as the global economic recovery remains slow, while an increase in international trading protectionism could make it difficult for the country to maintain a double-digit growth in finished steel exports, Xu said.

Xu also forecast it will be more difficult for steelmakers to maintain profit margins, given the persistent high cost of raw materials cost and tighter pollution controls.

“We should be aware that there are great challenges in ensuring profit in the industry under these circumstances,” Xu concluded.

Between January and November 2013, China’s steel industry achieved a combined profit of 16.2 billion yuan ($2.7 billion), with the steelmaking business accounting for only 5.8 billion yuan ($951 million) of the total.