China will cap its steel production at a level lower than output for 2000 despite a forecast rise in demand this year.
Shi Wanpeng, vice-minister of the State Economic and Trade Commission, said the steel output this year will be kept under 115 million tons, slightly less than the 128 million tons in 2000.
"Steel prices will slide again if we start to slacken now because the balance between supply and demand on the market is still fragile," Shi said.
The steel industry suffered slumps in prices of steel products and profits from 1994 to 1999 mainly because of an oversupply on the home market.
To hit the target, efforts must be strengthened to close small and low-level steel plants this year, Shi said.
The commission has planned to close 103 small plants this year. Already 73 have been shut down or have stopped production.
Shi said the government would continue to keep close tabs on the production of the large and medium-sized steel enterprises to ensure output control.
According to an industrial report of the State Council-affiliated Development Research Center, domestic demand for steel is expected to increase by up to 6 percent this year, from around 140 million tons in 2000 as the government will invest more in infrastructure especially in the vast western regions.
"But the increase of market supply will outpace that of demand if we fail to control the output," said Liu Shijin, director of the Industrial Economics Research Department of the center.
During the fourth quarter last year, steel prices began to fall because of the oversupply on the market.
"Steel exports do not have great potential to rise this year as demand on the world market is not on the bullish side," Liu said.
The growth rate of global demand is expected to decline to 2.3 percent this year from 5.8 percent in 2000, said the World Iron and Steel Association.
Shi said domestic producers would face more difficulties in exporting steel because of a dumping charge put in place by the United States and Europe.
China aims to export at least 11 million tons of steel this year, Shi said.
The steel exports amounted to 11.3 million tons in 2000, an increase of 108 percent from the previous year.
Shi said the government would strictly control steel imports to alleviate pressures on domestic steel producers.
In recent years, cheaper steel products from Russia and Ukraine put a squeeze on domestic enterprises.
China's steel imports increased by 22.5 percent last year to 20.7 million tons.
The efforts of steel output control played a key role in the industry recovery from difficulties, Shi said.
The average price of steel products increased by 300 yuan (US$36.30) a ton from April to the end of last year, thanks to the efforts.
The industry reported a profit of 13 billion yuan (US$1.6 billion) last year against 3 billion yuan (US$361 million) in 1999.
Shi said the industry had set the target for a profit of at least 13 billion yuan (US$1.6 billion) this year.
(China Daily 03/26/2001)
