Reuters reported that China huge and fragmented steel sector is facing a painful period of restructuring and only the best companies will survive.

Mr Zhu Jimin head of the Beijing-based Shougang Group said while he was neither optimistic nor pessimistic about the prospects for the sector in 2010, demand would remain strong but the industry would still have to resolve some of its long-standing problems.

He said that "The industry is facing many, many uncertainties at home and overseas. For many kinds of historical reasons, Chinese steel firms are very dispersed, and this affects transportation costs and affects the pace of industry restructuring."

Surging demand helped keep smaller mills in operation last year as the government's CNY 4 trillion stimulus package drove a nationwide construction boom, but Mr Zhu said the perennial problem of overcapacity still had to be addressed.

He said that a wide-ranging plan to rectify the sector had already been submitted to the State Council, China cabinet for approval and in the next few years programs aimed at improving energy efficiency and eliminating outdated and polluting capacity would eventually winnow out the worst performers and force the big players to switch to more high-end steel products.

The steel sector is facing significantly higher costs this year, with prices of key raw materials like iron ore and coking coal surging as a result of higher demand, but the mills have been unable to pass the increased burden onto their customers.

Sourced from Reuters

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