People Daily reported that China steel industry will continue to face the problem of overcapacity with an estimated steel output of 700 million tons in 2012 but a newly released industry standard will help eliminate some excess capacity.

Mr Zhang Changfu vice chairman of the China Iron and Steel Association said the country output of crude steel is expected to reach 700 million tonnes this year up from 683 million tons in 2011.

Mr Zhang said the industry has been struggling with overcapacity high stocks and declining margins.

He added that "Domestic demand for steel products has been affected by the weak auto and property markets."

Mr Zhang said “Steel mills have seen declining margins because steel prices have dropped faster than raw material costs. Steel prices fell by CNY 500 a tonne year on year in the first quarter of 2012, but in the same period raw material costs including iron ore and coking coal dropped by just CNY 200 a tonne year on year.”

Mr Luo Tiejun, an official from the Ministry of Industry and Information Technology, said that the industry should speed up the process of mergers and acquisitions, and outdated capacity should be eliminated.

Mr Luo said steel makers that failed to meet a new standard for steel companies' production and operation, which was published Friday by the MIIT, will be shut down.

According to the CISA but the domestic production capacity of crude steel reached 850 million tonnes by the end of 2011.

Source – China Economic Review

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