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China s industrial excess goes beyond steel
Apr 9th 2016 | SHANGHAI
FIRST a tsunami of steel next a flood of what? Industrialists all over the
place might look nervously at China s cooling economy and ask that question.
The global glut in steel is most alarming because China s industry dwarfs all
others and its mills could easily produce more. Yet other sectors also have
existing or looming gluts.
One is coal. Thanks to a massive expansion now under way, China s coal industry
could have 3.3 billion tonnes of excess capacity within two years, reckons
Fitch, a rating agency; domestic consumption is less than 4 billion tonnes a
year and dropping. Traditionally China has imported, not exported, coal but
that could change. Shenhua Energy, the country s biggest coal miner, says it
might export 10m tonnes soon, up from 1.2m tonnes last year.
Another possibility is aluminium. Chinese smelters push out over half the world
s supply of the metal, thanks to an expansion that goes on despite the current
global oversupply. China Hongqiao, the world s biggest producer, plans to
increase capacity to 6m tonnes, up from 5.2m a year ago. The output of Chinese
aluminium has sent global prices plunging, hurting rivals. Yet a large part of
the cost of making aluminium is in the energy consumed. Just as China might end
up wary of exporting coal, it might also shy away from exports which, in
effect, also mean exporting energy.
Over-capacity within the oil refining industry also poses a threat beyond China
s shores. Shanghai Securities, a broker, estimates that the country has more
than 200m tonnes of overcapacity today. In 2014 Chinese refiners were thought
to be running at just two-thirds of capacity. Diesel exports leapt 79% to over
7m in 2015. China National Petroleum Corp, a state energy giant, forecasts that
total net exports of all oil products will rise by 31% this year to 25m tonnes.
Chemicals could be another glut candidate. Some 25,000 chemicals firms exist in
greater China though it is worth keeping in mind that statistics on Chinese
business are best served with generous pinches of salt. Many of those firms are
copycats cranking out commodity chemicals. For most of the 16 main types of
chemicals, ranging from purified terephthalic acid (PTA) to acrylic acid,
factories have been running well below capacity. Even so, Chinese firms are
still increasing their potential output. For example, the capacity for making
PTA, a polyester feedstock, has risen by 200% over the past five years. This
flood has swept away the profits of Japanese rivals.
Other industries also have grand overcapacity, but most will pose no global
threat. China s state-owned enterprises have many under-used factories that
make cars, for example, but these are so shoddy that few people want to buy
them abroad.