China has halted the expansion of its steel sector so as to help it overcome the chaotic situation that is currently prevailing in the industry.
With the Rio Tinto scandal ruining the Chinese steel industry, the government has imposed a 3-year halt on applications to expand production or to initiate new projects, reported China Daily.
It was noted that four Rio Tinto executives were charged on allegations of stealing the company's secrets and were also claimed of having alleged involvement in bribery, which the industry insiders view as a ploy that may be closely related to the deadlocked price talks.
According to the Industry and Information Minister, steel mills in China already have an estimated output capacity of 660 Million Tonnes, and several steel projects are under construction. Steel demand, on the other hand, is estimated at around 470 Million Tonnes.
China's steel industry is one of the major industries of the world, reporting the fastest growth pace both in terms of production and consumption, says RNCOS in its research report "China Steel Industry Forecast till 2012". China has expanded its steel-making capacity in order to meet the demand of its fast growing economy. The report says that cheap production base and robust economic growth are the main factors driving the increase in steel consumption.
If, in case, the trend continues, the country's steel industry will reach a blind alley, warned the minister. As a result, he said, the Ministry will not sanction expansion projects in the steel industry. In addition to this, it will eradicate obsolete projects.
The government further noted that it will continue supporting the China Iron & Steel Association in negotiating iron ore price, but will stop the disorderly situation and unruly competition among the importers in China so as to meet the constantly mounting prices of spot iron ore.
The industry minister stated, "Spot prices of iron ore are increasing sharply on the global market and we hope to see an appropriate relationship between spot prices and long-term contract prices." He hoped the world's major iron ore suppliers would consider both their own long-term interests and their long-term cooperation with China's steel industry."
According to a Research Analyst at RNCOS, "Steel industry of China is severely facing the problem of over-capacity. Moreover, authorities may probably use the Rio Tinto case to warn those benefiting from the steel industry's chaotic situation."
Related Market Research Reports:
Indian Steel Industry Outlook to 2012
US Steel Industry Outlook
China Aluminium Market Analysis
