March steel inventories hit record high

Inventories of steel products in China hit a record high in March, the Ministry of Industry and Information Technology (MIIT) revealed Thursday, in further bad news for the nation's steel sector, which has been hit hard amid the economic showdown.

The total stockpiles of five major steel products across 22 cities reached a new record of 15.57 million tons during March, up 22.9 percent compared to a month earlier, the ministry said Thursday in a statement on its website, citing the latest figures from the China Iron and Steel Association (CISA).

The rising stockpiles will put the industry under more pressure, the statement said.

Over the past few months, steel output has been rising at an accelerating pace, whereas demand for steel products has yet to see a big upturn, leading to the growing stockpiles, explained Wang Guoqing, a researcher at Beijing Lange Steel Information Research Center.

"The trend will definitely weigh on sentiment, as it indicates worsening oversupply in the market," Wang told the Global Times Thursday.

The overall climate confronting the steel industry remains severe, mostly owing to an excessively fast rise in steel output, Liu Zhenjiang, vice president of the CISA, also said at the end of March.

The iron and steel sector has been one of the industries most affected by the nation's cooling growth in recent years. While a recovery seen in China's economy since the fourth quarter of 2012 has helped the industry, the long-standing overcapacity issue appears to be getting worse.

The MIIT has promised to tackle the overcapacity issue. On Thursday, it announced goals for eliminating backward production capacity in 19 industries, including the iron and steel industries.

In 2013, production will be cut by a total of 2.63 million tons for iron and 7.81 million tons for steel, according to the MIIT.

But Wang said the goal is actually below her previous estimate, as this year's goals are lower than in previous years.

"Maybe backward production capacity has already been squeezed out in recent years," said Wang, adding that overcapacity problems are still rampant in the sector.

Analysts also expressed concerns over profit margins at the country's steel mills.

Major steel mills' profit margins are expected to fall further during March, weighed down by high iron ore prices and unstable steel product prices, Zheng Dong, a Beijing-based steel industry analyst at Guosen Securities Co, told the Global Times Thursday.

The situation may improve in the second quarter, but the bearish sentiment will probably last for the whole year, Zheng forecast.

The country's major steel mills netted total profits of 998 million yuan ($160.98 million) in February, a decline of 25.4 percent compared to the previous month, according to the CISA.