Private mills make up over half of China’s steel production

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Such mills produced about 362 million tonnes, according to a recent speech by Shen Wenrong, founder and president of Shagang Group, China’s biggest privately owned steel producer. The country produced 716.54 million tonnes of crude steel in 2012.

Shen was speaking at the opening ceremony for the Small and Medium-sized Metallurgy Enterprises Chamber of Commerce in early March.

The growth of private-mill production – its proportion of the country’s total steel output went from 35% in 2005 to 46.6% in 2011 and then a further increase last year – was driven by greater relative spending on new capacity, and the fact that private mills were generally more profitable than state-owned ones.

This trend will make it more difficult for the Chinese government to increase industry concentration, since private mils also tend to be more profitable.

“Only when private mills are running at a loss will they be interested in merging,” another analyst in Beijing said.

Shen said that the profit of 79 major private steelmakers averaged 55.40 yuan ($9) per tonne in 2012, or as high as 70 yuan per tonne for mills located in Hebei, Shanxi and Shandong provinces.

However, the overall profit margin for China’s steel industry was only 0.04%, with profit from steel sales averaging 2.60 yuan per tonne, according to the China Iron & Steel Assn.

“About 60-70% of China’s steel capacity expansion was made by private mills,” a Beijing-based analyst said.

The analyst added that it was hard to determine how much of this capacity was officially sanctioned.

China’s Ministry of Industry and Information Technology said in February that it planned to accelerate the consolidation of nine industries, including steel.