China Tells

(Australian) CHINA’S cabinet will once again try to impose control on the nation’s chaotic steel sector — one of a fresh list of industries ready for extra “guidance” from the state.

The country’s state council, led by Premier Wen Jiabao, has admitted that overcapacity — much of it triggered by the government’s 4 trillion yuan-plus stimulus package — has emerged across the nation in the steel and cement industries.

The council also believes there is too much speculation in wind power and polysilicon.

“Overcapacity and redundant projects remain prominent because of slow progress in industrial restructuring in some of these sectors,” the council said in a statement after its bi-monthly meeting, according to state run news agency Xinhua.

Threats of a fresh clampdown on the steel sector come after strong statements about consolidating the industry were made by the state council in March and similar efforts by the China Iron and Steel Association stretching back more than year.

So far little has changed, with 1200 steel mills operating across the country through hundreds of small companies operating outside high-level negotiations and spurring speculation in iron ore.

Stockpiles of steel are emerging after an unexpected spike in production earlier this year that many feared was running ahead of demand.

After a months-long rally to a 10-month high early this month, Chinese spot steel prices fell 4.9 per cent for the second week in a row over concerns a rapid tightening of bank lending may add to inventory build-up.

“The (state council’s) statement is consistent with China’s policy to curb over-productivity in steel, and it highlights the situation that even with market demand pushed up by the stimulus investment into infrastructure, excess production still exists,” Fu Yao, an analyst at Custeel.com, told The Australian. “The five principles in curbing the excessive productivity are general instructions, and more detailed policies will be following.”

Price talks between China’s steel mills and major iron ore producers led by Rio Tinto remain unresolved.

The council said that “guidance” would be particularly enhanced on the development of steel, cement, plate glass, coal chemical, polysilicon and wind power sectors. In effect, this is code for tighter government controls across a range of influencing factors, including vetting investors, loans and the number of companies in each sector.

The council, which has promised not to directly interfere with bank lending, ordered financial institutions to lend money for these sectors “in strict accordance with present industrial policies”.

The guidance would include strict controls on market access, reinforced environmental supervision, and tougher controls over land use, Xinhua said.

“Relevant government agencies would also strengthen monitoring over industrial capacity in these sectors, and jointly release information on topics such as the current scale of operations, public demand, and government industrial policies,” the council statement said.