The China Iron and Steel Association has told its members to lower expectations for the rest of the year, with weak demand and poor margins hurting profits for the country's largest steelmakers.
Reuters reports CISA chairman Zhu Jimin said while demand was forecast to improve, short term performance would be weak.
“Downstream demand will gradually improve, but at the same time it is difficult to see any relatively big rises in steel consumption, and the expectations of steel firms should not be too high, and they should not blindly expand output,” he said.
CISA deputy secretary general Li Xinchuang also warned firms to be careful about expanding steel production.
“We can put it like this — current steel capacity can already completely satisfy peak domestic steel consumption and we should stop all blindly expanding projects,” he said.
The lack of confidence has significant implications for the Australian mining sector, particularly for iron ore producers, which count Chinese mills as their primary customers.
Poor sales in China pushed benchmark iron ore prices to a five week low on Friday, and along with recasting profit expectations CISA has encouraged firms to strengthen their presence on the China Beijing Mining Exchange.
The CBMX is a rival ore trading platform China set up in attempts to lower commodity prices and curb speculation in the market.