China steel sector facing closures, big miners to suffer

China's bloated steel sector is facing a wave of closures in the next few years, with slowing demand and decades of "blind" expansion finally about to catch up with the industry, a senior executive and parliamentary delegate said.

Zhang Wuzong, the chairman of the privately-owned Shandong Shiheng Special Steel Group and a forty-year veteran of the industry, told Reuters in an interview that China's problems would also scupper the huge expansion plans of suppliers like Rio Tinto (>> Rio Tinto Limited) (>> Rio Tinto plc) and BHP Billiton (>> BHP Billiton Limited) (>> BHP Billiton plc), which have bet their future on sustained demand growth in China.

No steel firm will be immune, with the future of even state-owned firms like the loss-making Angang Group <ASISG.UL> (>> Angang Steel Company Limited) at risk, he added.

"The Chinese market is now oversupplied," he said. "The government knows it and we know it. 'Survival of the fittest' is the only way to solve the problems."

"It will take time but I believe a lot of the backward private enterprises will be closed. I also believe there will be some state-owned enterprises that will be eliminated too, including some of the big ones. This is a certainty."

China has at least 900 million tonnes of crude steel production capacity, far higher than its official total output of 716 million tonnes in 2012. Profits in the sector fell 98 percent last year with many firms making losses.

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