China’s steel industry is preparing for what it has termed a crisis, which is worse than the previous ones in 2008 and 2015. At the half-year meeting of China Baowu Steel Group, the world’s largest steel producer, Hu Wangming, the chairman, urged the company to focus on cash conservation, describing the current environment as a ‘winter.’
The industry is now challenged with a sharp decline in domestic demand occasioned by a long-term decline in the property sector and declining factory output, which have seen steel mills offer multi-year low prices and huge losses. Baowu, which produces about 7% of the world's steel, has noted a decline in iron ores as rebar futures in Shanghai declined by over 4% to a level last seen since 2017.
With steel production under pressure, inventories are building, and the margins per tonne of steel made are falling, leading to mills talking about reductions in production. Exports are expected to reach more than 100 million tons, the highest since 2016 since domestic producers look for markets outside the country due to low consumption.
The current downturn brings issues familiar to prior crises, but the potential for stimulus is less clear as President Xi Jinping looks to reorient the economy for the long term.
Baowu's emphasis on financial prudence underscores the industry's precarious situation, urging companies to prioritize cash flow and mitigate risks as they navigate this difficult landscape. As he said, “Financial departments at all levels should pay more attention to the security of the company’s funding with a need to strengthen controls, including for overdue payments and detecting fake trades. In the process of crossing the long and harsh winter, cash is more important than profit.”
