China may buy steel for reserves, aid exports

China may take further measures to revive its steel industry, which is the world's biggest and could suffer an overall loss in the next half-year, the Minister of Industry and Information Technology said on Friday.

Chinese authorities are considering raising export tax rebates and buying some steel products for its reserves in an attempt to help the country's steel mills, Li Yizhong told a news conference in Beijing on Friday.

"We suggest the export rebates on several high-end steel products could be raised by several percentage points, while we restrict exports of some low end energy-intensive products," Li said. China has scrapped several steel export taxes from December.

Chinese officials have talked about buying commodities and resources, including base metals and crops, in order to support producers. But Li's remarks were the first indication that it could also build up reserves of steel, which was already seen as a major beneficiary of China's 4 trillion yuan ($586 billion) stimulus package

Analysts have said building up stocks may give some support to prices in the short term, but the policy could also mean producers take longer to emerge from the current slump in demand, with a U-shaped recovery rather than a V-shaped bounce, since the government stocks may return to the market as prices recover.

The government could also tackle the current problem with policies to help enterprises store these extra products, or the government could purchase a certain amount so that production capacity does not stand idle, Li said.

China's top economic planning body, the National Reform and Development Commission, was working with other government authorities on the specific amounts and the method, he said.

Li said China's steelmaking capacity was 600 million tonnes, but this year the country's actual output was likely to be 480-490 million tonnes. He said 15 billion yuan ($2.19 billion) could used to support technical renovation next year, with the steel industry as the main beneficiary.

He said China could also increase imports of manganese and some other ferrous metals, such as chromium, when prices were low.

Li also said the government would adopt a preferential policy to encourage steel industry consolidation and seek more bargaining power in iron ore pricing by stopping steel mills from bidding each other up.

Li said China had purchased a huge amount of iron ore at a high prices, of which 30 million tonnes were stored in the steel mills, 90 million tonnes in port warehouses, and 100 million tonnes were booked but had not been delivered.

"Steel mills will take until March next year to absorb these high-price raw materials," Li said.

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