core sector communique

Chinese steel capacity expansions continue, despite government ban

Chinese steel producers are ignoring government rules banning capacity expansions, according
to the latest research from SBB Research and Consulting. If this trend continues, and local
demand does not pick up strongly, then Chinese exports could return to the very high levels
previously seen in 2007.

China’s State Council has just reiterated its ban on new capacity expansion projects, stating that
no new capacity projects will be approved before the end of 2011. This follows on from a three
year moratorium announced in August 2009. In addition, the country’s top ten steel producers
are being targeted by for a 60% share of total by 2015.

Despite the 2009 ban, the most recent report from SBB Research & Consulting finds that 31
Chinese steel mills have announced 40 new capacity expansion projects in the country since
the beginning of 2010. This includes 9.9m tonnes/year of iron and crude steel making capacity.
A large proportion of the announced new rolling capacity will be for long products (16.4m t/y),
whilst new hot rolled flats capacity is estimated at 6m t/y. Furthermore, 23 of the 40 expansion
projects announced this year are being carried out by mills, which are not amongst the top ten
largest producers.

“As with the previous ban, the latest move to curb capacity additions is meaningless in the face
of mills continuing to steam ahead with expansion projects”, comments Rafael Halpin, China
Analyst at SBB in Shanghai. “This also puts the latest consolidation target into question,” he
adds.

“Global overcapacity is currently running at around 300m t/y. This additional new expansion
projects in China could well mean much higher exports and depressed global prices in the
coming months,” adds Roger Manser, Managing Editor at SBB.