Wu Dongying, director of the economic management institute of major Chinese steelmaker Baosteel, has predicted that the construction steel sector in China will face a situation of severe overcapacity in the coming two to three years.

He also predicted that in the Chinese domestic market, where there is a lack of control of resources and where transactions are characterized by disorder, market prices will remain unstable for a long time to come.

Commenting on the overcapacity issue, Mr. Wu stated, "In the coming two years, the large volume of investment will support the demand for steel for infrastructure purposes. However, later a situation of excess construction steel capacity will arise, and the problem may be serious."

Mr. Wu went on to say that because China's RMB 4,000 billion economic stimulus plan has brought forward many middle-term and long-term projects ahead of schedule, the present capacity utilization rate for construction steel is almost 80 percent, but afterwards demand will see a massive drop.

Then, steelmakers' overcapacity problem in terms of construction steel will come to the fore, he said.