Remember the issue a few weeks ago with Algoma steel wanting to keep some cash in reserve, and the shareholders wanting it now?
Here’s one of the reasons Algoma was right and the shareholders wrong …
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.
“The overcapacity problem in China’s steel industry cannot be solved next year, and that will further depress steel prices,” the think tank — backed by the country’s cabinet — 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.