Overcapacity vexes Chinese steel industry in H1

The Chinese steel industry faced severe overcapacity in the January-June period, an official with the Ministry of Industry and Information Technology (MIIT) said on Wednesday.

Zhu Hongren, the MIIT's chief engineer, said the output of crude steel stood at 390 million tons, up 7.4 percent year on year, with an average daily production of 2.15 million tons.

However, the steel price kept declining so that the price index produced by the China Iron and Steel Association (CISA) dropped 3.3 percent month on month to 98.5 points by the end of June, and down 14.7 percent from a year ago.

But the price of iron ore dropped much slower than the steel price. In June, the iron ore price slightly dipped 0.3 percent from the beginning of 2013, equating to a drop of about 30 yuan ($4.86) per ton, while the average steel price declined about 280 yuan per ton, Zhu said.

The CISA's data also showed the rising risks of insufficient capital in the sector. From January to May, the debt-to-asset ratio of key Chinese steel firms stood at 69.4 percent, reflecting financing difficulty.

Meanwhile, due to stricter energy saving and emission standards concerning particulate matter and sulfur dioxide some steel enterprises are required to invest more on reducing pollution.

The National Development and Reform Commission (NDRC), China's top economic planner, said last month that large enterprises, with annual business income exceeding 20 million yuan, consumed 1.11 billion tons of coal equivalent in the first five months, up 2.98 percent year on year.

The NDRC said the goal to lower the energy consumption per unit of GDP more than 3.7 percent this year became harder to realize because of the industries with high energy consumption, including the steel industry.

Zhu said the government will push adjustment and upgrades to the steel industry and support energy saving, so as to ease overcapacity and ensure a steady development of the sector in the second half of the year.