China’s leading steelmakers warned the industry faces a very challenging second half as demand disappoints, profitability lags, and pressure to cut costs mounts in the world’s top producer.
(Bloomberg) — China’s leading steelmakers warned the industry faces a very challenging second half as demand disappoints, profitability lags, and pressure to cut costs mounts in the world’s top producer.
Representatives from China Baowu Steel Group Co., Ansteel Group Co., Hesteel Co. and Hunan Iron & Steel Group Co. said they are “not optimistic” about the coming six months, the China Iron & Steel Association said after the four companies attended a meeting organized by the industry body this week.
“The peak inflection point for steel demand has emerged, while the problems of insufficient end-user consumption, and ongoing thin margins are particularly prominent,” the CISA said in a statement, citing the quartet of companies.
Mills in China — which account for more than half of global steel production and are the largest importers of iron ore — have struggled this year as the nation’s recovery has stalled while a property crisis dragged on. Data released on Friday showed that manufacturing contracted again in June, adding to a string of soft figures. While that’s led to calls for more stimulus to prop up growth, officials in Beijing have so far refrained from significant measures.
“We are relatively cautious on further gains in iron ore,” said Wei Ying, an analyst at China Industrial Futures Ltd., citing the dimming outlook for Chinese steel demand. The outlook hinges on how China carries out additional stimulus, including whether the National Development and Reform Commission intervenes again, Wei said, referring to the senior state agency.
Iron ore futures gave up an early gain to tumble 1.8% lower at $110.75 a ton in Singapore at 6:04 p.m. The move lower widened a quarterly loss to 12%, although prices remain higher this month.
Almost half of major mills were loss-making in the first five months of the year, CISA said. Meanwhile, official figures show nationwide steel production in May was the lowest for that month since 2019, and the industry’s purchasing managers index pointed to another contraction in June even as orders rose.
Low profitability in the industry has persisted for nearly a year, said Luo Tiejun, the association’s vice chairman. However, “upstream raw materials for steel-making still remain at a relatively elevated levels,” Luo added.
The spot price of steel rebar — a benchmark product that’s used in construction — has slumped by more than 8% this year, while iron ore futures in Singapore have dropped about 3% in that period.
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