China’s large state-owned steelmakers are struggling with thin profits and excess capacities, while the smaller, private steel mills are in much better conditions, Feng Liguo, an expert from the Chinese Academy of Social Sciences, said in an article published in Caijing Magazine.

A major state-owned steelmaker told the media that China’s steel production is in severe surplus and the current production capacity even exceeds the expected consumption demand for the next five to 10 years.

But this opinion is denied by a number of private steel mills. One private steel mill said the capacity is not too excessive, but is within a reasonable range considering the ongoing urbanisation and industrialisation in China.

Another private steel mill said its operation rate has been above 95% for the past two years with good sales, denying the company has an excess capacity.

Feng said the 86 major steelmakers in the country had combined profits of RMB 1.58bn ($25.44M) last year, compared to RMB 202.4bn ($32.59M) of profits for the overall steel industry.

A survey shows that sheet and strip steel products in China, which are mainly produced by the large state-owned steelmakers, was in severe excess last year. Meanwhile, the smaller, private steel mills, which mainly produce long products and construction steel, saw good demand last year. Some of them even found the need to build new capacity.

Thus, China has a ‘structural’ overcapacity instead of an ‘absolute total surplus,’ Feng said.

He stresses the importance of market-oriented production and suggests that steelmakers decide what to produce based on market demand.

The number of private steel mills in China has increased sharply in the past decade. The output of private steel mills in 2000 accounted for just 7.7% of national steel output, but the share soared to 48.4% in 2012.

Last year, China produced over 700Mt of crude steel, with nearly half produced by the private steel mills.