Workers process seamless steel pipes on a production line in Huai’an, Jiangsu province, China, October 20, 2022.
Future release | Getty Images
China’s steel industry is struggling as the country’s real estate sector remains in a slump and unable to absorb excess capacity, industry observers told CNBC.
“Chinese demand has been a big disappointment for metals across the board,” said Sarbin Chowdhury, head of commodity analysis at BMI, particularly for steel and iron ore.
“This is mainly due to the weak real estate sector in China. The downturn in the real estate sector is expected to last for several years and this definitely does not bode well for industrial metals, which are needed in infrastructure,” she added.
China is the world’s largest steel producer and accounts for more than half of global steel production with over one billion tons per year.
The country is also the world’s largest consumer of steel and iron ore, and prices for both materials have fallen as steel supply remains bloated amid weak domestic demand.
Rebar prices in China have fallen more than 20% since the start of the year to 3,208 Chinese yuan ($450) per tonne, data from financial information provider Wind showed. Prices for Chinese iron ore, the main material for steel, have fallen more than 28% so far this year, according to FactSet data.
The “winter” of the steel industry
Hu Wangming, chairman of the world’s largest steel producer and state-owned company Baowu Steel, recently said the steel industry was going through a “winter”, adding that the industry was in the midst of a long-term adjustment period.
China’s steel industry is in a bind as steelmakers’ margins continue to come under pressure from weak demand, said Matty Zhao, head of basic materials, oil and gas in Asia Pacific at Bank of America. Subdued demand is expected to continue into 2025 due to a “very weak” Chinese real estate market, she told CNBC.
“Chinese exports have had a significant impact on steel production prospects in the rest of the world.”
Moreover, since no concrete measures were announced at the country’s much-watched third plenum, hopes that China’s crisis-hit real estate sector will overcome its crisis are fading.
Excavator sales in China are expected to decline 8% year-on-year in fiscal 2024, Citi wrote in an August note. Excavator sales are typically seen as a leading indicator of construction activity and, by extension, metal demand.
“Steel mill margins in China are at risk of falling to their lowest levels this year, potentially putting even more downward pressure on iron ore prices,” said Vivek Dhar of the Commonwealth Bank of Australia.
Chinese steel producers have incurred losses over the past 12 months as they seek better prices in export markets, said BofA’s Zhao.
“Unsustainable” market conditions
Several countries have made dumping allegations against China as Chinese producers seek to boost exports amid a slowdown in the domestic market.
Thailand recently announced the imposition of anti-dumping duties on hot-rolled steel coils from China. Last September, India also imposed anti-dumping duties on certain Chinese steel grades for a period of five years. Vietnam’s Ministry of Industry and Trade has also launched an investigation into some types of hot-rolled coils from China and India.
“Chinese exports have had a significant impact on steel production prospects in the rest of the world,” Citi analysts said.
In July, China exported 57.1 million tonnes of net steel. If this rate continues for the rest of the year, China’s net steel exports would rise 17 per cent year-on-year in 2024, the Citi team said. The increase in steel exports in 2023 reduces the scope for steel production in the rest of the world, it added.
Chile’s largest steel mill, Compañía Siderúrgica Huachipato, recently announced that it would close its steel operations “indefinitely” because it was “impossible to compete with Chinese steel.”
The world’s second-largest steel producer, ArcelorMittal, has said China’s overproduction has made conditions in the steel market “unsustainable”.
“China’s overproduction relative to demand is leading to very low domestic steel price margins and aggressive exports,” the Luxembourg-based company said in its second-quarter results.
China’s steel dumping could lead to oversupply in exporting countries and thus harm the share prices of Chinese steel producers, said Zhao of Bank of America.
Five Southeast Asian countries, including Vietnam, Thailand, the Philippines, Indonesia and Malaysia, absorbed 26% of China’s steel exports in 2023, followed by South Korea with 9%, according to BofA statistics.
