The world’s biggest steel producer sounded the alarm about an
industry crisis in China that carries the potential to ripple around the globe
and plunge the sector into a deeper downturn.
Conditions in China’s steel sector are like a “harsh winter”
that will be “longer, colder and more difficult to endure than we expected,”
China Baowu Steel Group Corp. chairman Hu Wangming told staff at the company’s
half-year meeting, warning of a worse challenge than major traumas in 2008 and
2015.
Global investors are lasered onto China’s struggling economy,
even as they also contemplate the possibility of a recession in the US, with
the Federal Reserve moving toward interest rate cuts. For commodities including
steel, the warning from Baowu underscores risks to demand and prices, as well
as what ArcelorMittal SA, the industry No. 2, called an “aggressive” surge of
exports from China.
China’s steel market — by far the world’s largest — is flashing
multiple warning signs as the protracted property downturn shows no signs of
ending, while factory activity remains subdued. Baowu alone produces about 7%
of the world’s steel, and its commentary is closely tracked to gauge the market
mood in the Asian nation.
Hu’s stark message will likely be a worry for rivals across
Asia, Europe and North America as they grapple with a fresh wave of Chinese
exports, often by pushing for trade measures. Shipments from China are on track
to reach about 100 million tons this year, the highest since 2016, as producers
there scramble to offset a domestic slowdown.
German steel giant ThyssenKrupp AG on Wednesday highlighted the
industry’s challenges by reporting a big slump in earnings. Earlier this month,
ArcelorMittal said China’s rising exports had put the global market in an
“unsustainable” condition.
Iron ore futures in Singapore fell as much as 3.4% to $95.20 a
ton, the lowest level since May last year. The rout in steel markets was even
more marked, with rebar futures in Shanghai plunging more than 4% to the
cheapest since 2017. BHP, which gets much of its revenue selling iron ore to
China, fell nearly 3%.
China’s country’s steel industry suffered devastating slumps
during the Global Financial Crisis of 2008-2009, and again in 2015-2016. In
both cases, the crises were ultimately resolved by massive stimulus — a
prospect that looks more remote in 2024 as President Xi Jinping bids to reshape
the economy.
Baowu didn’t offer much on the causes of the current downturn,
focusing on how employees should respond: by preserving cash and minimizing
risks.
“Financial departments at all levels should pay more attention
to the security of the company’s funding,” a Baowu statement said, 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.”
Mining.com