Economic Observer Online
August 16, 2012
By Kang Yi(康怡))
Translated by Zhang Dian
Original article: [Chinese]

Last Friday (August 10), China Iron and Steel Association (钢铁工业协会) held the Fifth Conference for Northern Sheet Material Production Enterprises (第五次北方地区板材生产企业会议). More than ten steel manufacturers including Shougang Group (中国首钢集团) and Anshan Iron and Steel Group (鞍山钢铁集团公司) agreed to coordinate a cut in steel production.

It's harsh winter for the steel industry as demand has plunged amid a chilly macro-economic climate. The price of steel continues to go down but still remains a bit higher than production costs; so steel manufacturers are reluctant to reduce production.

But steel supply overwhelming demand has been disastrous for some factories. Song Shuixin ( 宋水信) from Anyang Iron and Steel Group (安阳钢铁集团) believes this cut in production will lead to a balance of supply and demand and add to steel sales at the same time.

Zhang Lin (张琳), researcher at Lange Steel Information Research Center (兰格钢铁信息研究中心), says that if the cut in steel production can be realized at a certain scale, the price of steel will hopefully bounce back.

Early this July, some steel factories organized an equipment overhaul which, to some extent, lowered production. But according the data from Lange Research, production only decreased by 588,000 tons at a total of 22 factories, which is far from enough.

According to China Iron and Steel Association, the average daily crude steel production at 78 key manufacturers in July averaged about 1.99 million tons. Some experts maintain that there's still a long way to go before achieving a balance between steel supply and demand.

"To get out of this trap, first steel factories should cut production further,” said Jiang Tao (江涛), head of the marketing department at Shougang Sales Company (首钢销售公司). “Then we should also rely on the support of policies to increase demand."