China’s steel output was understated, says Wu Xichun5 September, 2012, 16:46. Posted by Zarathustra
Steel industry in China is now known to be unprofitable. Profit margin is close to nothing, while production capacity is high. Meanwhile, banks have to roll over their debts, apparently, to keep them alive. However, production has not really slowed down much despite clearly slowing demand. Worse still, and interestingly (although not surprisingly), the steel output figures reported by the National Bureau of Statistics might have been understated.
According to 21st Century Business Herald, crude steel output for 2011 should be around 730 million tonnes instead of 683 million tonnes as reported by the National Bureau of Statistics, citing the rather angry honorary president of China Iron & Steel Association, Mr. Wu Xichun. One of the key sources of understatement comes from the fact that Hebei province has long under-report its crude steel production figure. For last year, it is understated by about 50 million tonnes.
The story gives us a glimpse of why people like us who work with Chinese macro data frequently are always very sceptical about the official data. According to 21st Century Business Herald, local governments were asked to improve energy efficient, reduce pollution, and close down production capacity operated on out-of-date technology. However, provincial government does not like to see production capacity closing down on a large scale. In order to pretend “mission completed” while it was not completed, they under-report production numbers.
For steel industry, this is interesting because while we have known that the steel industry has too much capacity and is producing too much. Perhaps we were all wrong: the steel industry is actually producing even more than reported.