China Steel Head Says Demand Slumping at Unprecedented Speed
28 October 2015
If anyone doubted the magnitude of the crisis facing the world’s largest steel industry, listening to Zhu Jimin would put them right, fast.
Demand is collapsing along with prices, banks are tightening lending and losses are stacking up, the deputy head of the China Iron & Steel Association said on Wednesday.
“Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” said Zhu at a quarterly briefing in Beijing by the main producers’ group. “Although China has cut interest rates many times recently, steel mills said their funding costs have actually gone up.”
China’s mills -- which produce about half of worldwide output -- are battling against oversupply and sinking prices as local consumption shrinks for the first time in a generation amid a property-led slowdown. The fallout from the steelmakers’ struggles is hurting iron ore prices and boosting trade tensions as mills seek to sell their surplus overseas. Shanghai Baosteel Group Corp. forecast last week that China’s steel production may eventually shrink 20 percent, matching the experience seen in the U.S. and elsewhere.
“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu said. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.”
Medium- and large-sized mills incurred losses of 28.1 billion yuan ($4.4 billion) in the first nine months of this year, according to a statement from CISA. Steel demand in China shrank 8.7 percent in September on-year, it said.
Signs of corporate difficulties are mounting. Producer Angang Steel Co. warned this month it expects to swing to a loss in the third quarter on lower product prices and foreign-exchange losses. The company’s Hong Kong stock has lost more than half its value this year. Last week, Sinosteel Co., a state-owned steel trader, failed to pay interest due on bonds maturing in 2017.
Crude steel output in the country fell 2.1 percent to 608.9 million tons in the first nine months of this year, while outbound shipments jumped 27 percent to 83.1 million tons, according to official figures.
China’s mills face some of their worst conditions ever and the vast majority are losing money, Citigroup Inc. said in September. The outlook is the worst ever amid unprecedented losses, Macquarie Group Ltd. said this month.
China’s steel production may contract by a fifth should the country’s path follow the Europe, the U.S. and Japan, Shanghai Baosteel Group Chairman Xu Lejiang told reporters in Shanghai last week. The company is China’s second-largest mill by output.
“Financing remains an acute problem as banks strictly restricted lending to the steel sector,” Zhu said. “Many mills found their loans difficult to extend or were asked to pay higher interest.”