||This study focuses on two issues: The size of over-capacity in China’s iron and steel industry, and what is its influence. This empirical research uses Ordinary Linear Squares and Mutiple Regression to determine which factors significantly affect steel supply and demand. The result shows that USD 10,000 of real GDP per capita is a critical threshold: Under USD 10,000, all explain variables, including capital formation, capital formation of GDP, real GDP per capital, and rural population of total population, have significance to crude steel production and crude steel per person; Over USD 10,000, only capital formation can explain crude steel per GDP.|
In my estimation, China’s crude steel production will reach 784 million tones in 2015, and its crude steel capacity already exceed 1 billion in 2013 and keep growing in a speed over demand growing. China’s crude steel capacity is expected to reach 1.12 billion in 2015, in other words, the level of over-capacity in China’s iron and steel industry will over 300 million tones at that time.
Combination of a stagnant growth of China’s crude steel production and expansion plans of iron ore producers can squeeze out Chinese private small-and-medium mines, and limit the upper potential of iron ore price. The size of over-capacity in China’s iron and steel industry is expanding recently, and it indeed hurts earnings ratios of steel companies, like Baosteel, China Steel, and POSCO.