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ECONOMY
Weekly Watch> WEEKLY WATCH NO. 31, 2010> ECONOMY
UPDATED: July 30, 2010 NO. 31 AUGUST 5, 2010
Steel Gloom
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Reeling from weak demands and overcapacity, Chinese steelmakers are caught on a tight spot.

The China Iron and Steel Association (CISA) said 77 large and medium-sized domestic steelmakers raked in a combined profit of 6.25 billion yuan ($922 million) in June, a sharp drop from 10 billion yuan ($1.5 billion) in May.

Demands for steel remain lackluster in part due to deep downturn on the real estate market. Domestic steel prices have been on a downward trend since April until a timid rebound in middle July.

More disturbing, though, was the problem of overcapacity that has cast an ominous shadow over prospect of the industry, said Xu Xiangchun, a senior analyst at the mysteel.com, a steel information service company based in Shanghai.

On top of the worries came the government order to cancel tax rebate for exports of 406 items, including some types of steel products. This is expected to rub salt into wounds of the steelmakers, said Xu.

In response, Chinese plants have cut back on their output to shore up prices and also weaned off reliance on imported iron ores to save costs. While domestic production of iron ores hit a record high of nearly 102 million tons in June, the imports have been declining for three consecutive months since April, said the National Bureau of Statistics.



 
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