(Bloomberg) — China’s steel industry is facing a crisis even more severe than the downturns of 2008 and 2015, the world’s largest steelmaker warned, stressing the need to preserve cash and likening conditions to a “harsh winter.”
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The crisis is likely to last longer and be “more difficult to endure than expected,” Hu Wangming, chairman of China Baowu Steel Group Corp., said at the company’s half-yearly meeting, according to a statement.
Hu’s comments contributed to renewed weakness in iron ore and steel markets on Wednesday, with commodity prices falling to their lowest since last year and rebar futures in Shanghai slumping more than 4% to their lowest since 2017.
China’s steel market – by far the world’s largest – is sending out several warning signals as the property downturn and weaker factory activity have hit domestic demand hard this year. Prices have fallen to multi-year lows and steel mills have posted losses. Baowu alone produces about 7% of the world’s steel, and Hu’s urgent message is likely to worry rivals in Asia, Europe and North America grappling with a new wave of Chinese exports.
The country’s steel industry suffered devastating declines during the global financial crisis of 2008-09 and again in 2015-16. In both cases, the crises were ultimately resolved by massive economic stimulus – a prospect that seems distant in 2024, when President Xi Jinping seeks to transform the economy.
Baowu did not elaborate on the causes of the current downturn and focused on how employees are responding: by preserving their cash and minimizing risks.
“Finance departments at all levels should pay more attention to the security of corporate financing,” the statement said. Increased controls must be implemented, including for overdue payments and the detection of bogus transactions. “As we survive the long and hard winter, cash is more important than profit.”
As steel mills struggle, iron ore stocks are swelling while rebar used in construction is at its cheapest since 2017. Steel production is becoming increasingly unprofitable, putting pressure on steel mills to cut production. At the same time, exports are on track to exceed 100 million tonnes, the highest level since 2016.
(Updated with iron ore and steel prices in the fourth paragraph.)
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