On October 20, 2022, workers processed seamless steel pipes on a production line in Huai'an City, Jiangsu Province, China.
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Industry observers told CNBC that China's steel industry has been struggling as the country's real estate sector continues to slump and it is unable to absorb excess production capacity.
Sarbin Chowdhury, head of commodities analysis at BMI, said “Chinese demand has been a big disappointment for metals in general,” especially steel and iron ore.
“This is mainly due to the weakness of China's real estate industry. The downturn in the real estate industry will last for several years, which is definitely a negative sign for industrial metals needed for infrastructure,” she added.
China is the world's largest steel producer, Accounting for more than half of the world's production, the annual output exceeds one billion tons.
China is also the world's largest consumer of steel and iron ore, and prices of both materials have fallen as domestic demand remains oversupplied and steel remains in excess.
Chinese rebar prices have fallen more than 20% so far this year to 3,208 yuan ($450) a ton, according to financial information provider Wind. FactSet data shows that so far this year, the price of iron ore, the main raw material for Chinese steel, has plummeted by more than 28%.
“Winter” for the steel industry
Hu Wangming, chairman of state-owned Baowu Steel Company, the world's largest steel producer Recently said that the steel industry is going through a “winter” He also said that the industry is in a long-term adjustment period.
Marty Zhao, head of Asia-Pacific basic materials, oil and gas research at Bank of America, said China's steel industry is in a “dilemma” as steelmakers' profits are increasingly squeezed due to weak demand. She told CNBC she expects sluggish demand to continue into 2025 as China's real estate market is “very weak.”
“China's exports have a significant impact on steel production prospects in other parts of the world.”
Moreover, hopes for China's troubled real estate sector to emerge from the slump are fading as no concrete measures were announced at the country's high-profile Third Plenary Session.
Citigroup wrote in an August report that it expects China's excavator sales to fall by 8% annually in fiscal 2024. Backhoe sales are often seen as a leading indicator of construction activity and, by extension, metals demand.
Vivek Dhar of Commonwealth Bank of Australia said: “Profit margins of Chinese steel mills are likely to fall to their most negative levels this year, which may put more downward pressure on iron ore prices.”
Bank of America's Zhao said Chinese steelmakers have been losing money over the past 12 months and are looking to export markets to get better prices.
“Unsustainable” market conditions
Several countries have filed dumping charges against China as Chinese producers try to boost exports amid a slowdown in the domestic market.
Thailand recently announced the imposition of anti-dumping duties Hot rolled steel coils from China. In September last year, India also imposed anti-dumping duties on products. Five years for certain Chinese steel companies. The Ministry of Industry and Trade of Vietnam also Investigation launched into some types of hot rolled coils from China and India.
“China's exports have a significant impact on the outlook for steel production in the rest of the world,” Citi analysts said.
The Citi team said that China's net steel exports in July were 57.1 million tons. If this growth rate is maintained for the rest of this year, China's net steel exports will increase by 17% year-on-year in 2024, adding that China's net steel exports in 2023 will increase year-on-year. than growth of 17%.
Compañía Siderúrgica Huachipato, Chile’s largest steel mill, recently announced that it will Close its steel business “indefinitely” The result is that it “cannot compete with Chinese steel.”
ArcelorMittal, the world's second largest steelmaker, said Overcapacity in China has led to “unsustainable” steel market conditions.
“China's production is in excess relative to demand, resulting in very low domestic steel price differentials and high export volumes,” the Luxembourg-based company said in its second-quarter results.
Bank of America's Zhao said China's steel dumping could lead to oversupply at its export destinations, hurting the share prices of domestic steelmakers.
According to Bank of America statistics, the five Southeast Asian countries including Vietnam, Thailand, Philippines, Indonesia and Malaysia will absorb 26% of China's steel exports in 2023, followed by South Korea, accounting for 9%.