LONDON • Plans to shrink China's bloated steel industry will probably fail to stem industry losses or curb the deluge of exports that is hurting producers from India to the United States and Europe.
Up to 150 million tonnes of capacity will be shut under a five-year blueprint that is part of a swathe of supply-side reforms directed by President Xi Jinping. The government is trimming the industry as demand sags after decades of expansion.
The cuts, amounting to 13 per cent of capacity at most, fall short of requirements, according to analysts from Capital Economics, Macquarie Group and Argonaut Securities (Asia).
"The announcement is a disappointment," Ms Caroline Bain, a London-based senior commodities analyst at Capital Economics, said. "Now that we know this is intended to happen over five years, the immediate market impact seems minimal and could be negative."
While steel production fell last year for the first time since 1981, demand is waning even faster, and the nation is sending record volumes overseas.
Shares in the world's biggest mill, ArcelorMittal, have dropped 58 per cent in the past year, partly because the exports are fuelling a slump in prices and profits. The company yesterday announced a 28 per cent drop in full-year profit and said it plans to raise US$3 billion (S$4.2 billion) as it seeks to cut debt. It will raise a further US$1 billion selling its stake in Gestamp.
Shares in the world's biggest mill, ArcelorMittal, have dropped 58 per cent in the past year, partly because the exports are fuelling a slump in prices and profits.
Billionaire Lakshmi Mittal, the chief executive officer who owns about 37 per cent of the company, has committed to maintain his stake in the business and his family will take up about US$1.1 billion, the Luxembourg-based company said in a statement yesterday.
"This capital raise, combined with the sale of our minority shareholding in Gestamp, will accelerate the company's debt-reduction plan," Mr Mittal said.
China's blueprint includes a ban on new capacity, financial support for the mills as well as encouragement of mergers and acquisitions. About 400,000 jobs may be lost, a leading official with a state-owned consultancy said last month.
"China's still going to be exporting steel and associated deflationary pressures for a while," said Mr Colin Hamilton of Macquarie in London. The world needs 200 million tonnes to 250 million tonnes of capacity cuts, he added.
A raft of Chinese steelmakers have warned of big losses or large profit declines in the past few weeks, with Angang Steel, the fourth-biggest, predicting a 4.38 billion yuan (S$938 million) loss.
The government has to balance a serious situation for the steel market with the need for social stability, said Ms Helen Lau, analyst at Argonaut Securities (Asia) in Hong Kong. "It looks like China isn't going to reduce supply according to expectations. They may want to make sure that workers can be relocated slowly to other areas and ensure a smooth transition."