Steel industry to face further difficulties

China's steel industry will continue to face difficulties to cut costs and boost exports in the first quarter amid growing trade disputes, even though domestic demand is gradually increasing, a major economic policymaker said.

The National Development and Reform Commission published a forecast on the steel industry on Tuesday, saying the country's economic rebound in the fourth quarter has brought increasing demand. However, excessive supply will continue to be felt, it added.

"China's crude steel production capacity has reached 970 million metric tons," said Li Xinchuang, deputy secretary of the China Iron and Steel Association, at a conference in Beijing on Wednesday.

He said domestic demand for steel products will increase 4.1 percent this year to 660 million tons, while the country's iron ore demand will rise 5.7 percent to 1.11 billion tons.

"The development of China's steel industry depends heavily on future policies, considering the current situation of rising costs and weak demand," said Zhang Tieshan, an analyst at steel information provider Mysteel.com.

The inventories of the country's five major steel markets are at 20.38 million tons, the highest since 2004, said Zhang.

In previous years, it was common for steel inventories to rise after the Spring Festival holiday and to gradually be absorbed by the market after March.

However, Zhang said the rising inventories this time were caused by the increasing output of steel makers.

According to figures from the association, China's steel output in the first 10 days of the month reached 1.98 million tons, up 16.7 percent year-on-year and the highest figure since late October 2012.

Meanwhile, steel product prices have been falling.

From Feb 20 to Feb 26, hot-rolled steel products dropped 120 yuan ($19.07) a ton from 4,084 yuan a ton, according to Wang Guoqing, deputy director of the Lange Steel Information Research Center.

In some cities, prices of steel products even dropped 200 yuan a ton in a week, she said.

"The steel products market will continue to fall this week with an average price drop of about 30 to 40 yuan per ton," said Ge Xin, an analyst at Lange.

Last week, the central government said that property-price controls will be maintained, showing its determination to curb housing prices amid a recovery in China's property market in the past few months.

In addition to the government's real-estate policy, which has led to a pessimistic outlook for the steel market, the industry is also facing falling exports stemming from anti-subsidy and anti-dumping investigations launched by the United States, the European Union and Australia.

Last year, there were nine trade disputes targeting China's steel products - a dramatic increase compared with previous years. The ASEAN countries and Brazil also launched investigations into China's steel products.

"The global economic recovery is still sluggish and China's steel industry will face bigger obstacles in terms of exports this year," the National Development and Reform Commission said.