Oversupply forces Chinese steelmakers to react

Chinese steelmakers are dealing with a substantial oversupply problem that will likely force them to transform the way they do business.

A report posted on the China Iron and Steel Association (CISA)'s website on Monday said that a weak economic recovery, low demand, high prices for raw materials and high steel output have caused an oversupply of steel products.

The report, which was compiled by the Laigang Group, a major iron and steel corporation based in east China's Shandong Province, said unfavorable industry conditions will remain in July, a slack season for the manufacturing industry.

Although an overall urbanization plan is expected to be reviewed in July, it is not likely to affect the iron and steel industry in the short-term, according to the report.

The International Monetary Fund (IMF) recently cut its forecast for China's 2013 economic growth from 8 percent to 7.75 percent, indicating slower growth for the country's economy, the report said.

However, figures from the National Bureau of Statistics showed that steel output increased by 11.3 percent year on year to 91.19 million tonnes in May. In the first five months of the year, steel product output rose 10.8 percent year on year to reach 426.16 million tonnes.

Meanwhile, the Complex Steel Price Index (CSPI) released by CISA dropped by 13.35 percent year on year to hit 101.83 by the end of May, down 3.71 percent from that of April.

The industry profit frate was only 0.23 percent in the first four months and 40 percent of large and medium-sized steel businesses suffered operational losses, according to CISA.

Under such circumstances, steelmakers are trying to find ways to cope. He Wenbo, general manager of the Shanghai-based Baosteel Group, said developing high-tech products is one of them.