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China to see huge steel surplus: report
(Asia Pulse)
Updated: 2005-12-01 15:52

China will produce a surplus of steel next year equivalent to Japan's entire annual output as demand from the once red-hot property sector cools, a top government think tank said on Wednesday.

The world's largest steel producer and consumer could chalk up excess output of 116.5 million tonnes in 2006, or about a third of forecast output of crude steel this year, the State Council Development Research Center predicted.

It put the country's 2005 steel surplus at 43 million tonnes -- roughly level with Germany's yearly production.

Large investments in domestic steel capacity have fomented a growing glut and eroded world prices, hitting shares in major Asian producers such as Nippon Steel Corp. (5401.T) and Baoshan Iron and Steel Co. Ltd. (600019.SS).

"The overcapacity problem in China's steel industry cannot be solved next year, and that will further depress steel prices," the think tank said in a report in the official China Securities Journal.

Global markets have long feared that China would emerge as a net steel exporter, possibly triggering mill closures elsewhere with a flood of low-priced products.

The country became a net exporter in the first 10 months of this year, selling 23.29 million tonnes of steel and steel products abroad, compared with imports of 23.06 million tonnes, customs figures showed.

The think tank said Chinese steel supply, including imports, would soar 48 percent to 453.4 million tonnes in 2006, versus expected demand of 336.9 million.

Demand growth would also slow, particularly from the construction and machinery sectors.

But exports in 2006 would slip 5.8 percent to 19.46 million tonnes amid sluggish world prices and potential dumping charges against Chinese mills. Imports are expected to climb 15.3 percent to 32.69 million tonnes.

U.S. steel pipe producers urged President George W. Bush on Tuesday to restrict imports of competing products from China.
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