China’s steel industry could fall “off a cliff” amid overcapacity and trade woes

Prices have fallen sharply since 2021, and some steelmakers have called for production cuts, citing mounting losses and cash flow risks from overcapacity.

“In the past, [the steel industry] it was mainly supported by investments such as real estate, infrastructure construction and factory equipment renovation,” said Tang Zujun, vice president of the China Iron and Steel Association, during a meeting with the country’s biggest steelmakers in late April.

“In the future, it will be driven by strategic emerging industries and future industries based on consumption and innovation.

“The era of large-scale construction in our country is over.”

Tang called for better discipline and resource allocation, as well as “healthy” development of the sector, adding that over-investment in some products would further worsen overcapacity.

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“The biggest problem now is how to achieve a dynamic balance between supply and demand,” Tang added.

“If this issue is not dealt with well, it will have a huge impact on the ecosystem, sustainable development and international competitiveness of the entire industry.”

Tang compared the state of China’s steel industry to a field that was planted with too many seeds, resulting in poor crop growth.

“But now it’s hard to decide which one to take out,” Tang said, adding that everyone should be “mentally prepared” and avoid “falling off a cliff.”

In mid-April, Biden said import tariffs on Chinese steel and aluminum would be tripled in his administration’s first major tariff proposal on Chinese products.

In March, two major steel producers in Vietnam also requested an anti-dumping investigation into exports of hot-rolled steel from China.

And last week, Chile said it would impose temporary anti-dumping duties on Chinese steel products used in its mining industry in a bid to support faltering local producers.

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But overcapacity is likely to persist as nearly 55 percent of China’s steel products are used in building real estate and infrastructure, and both sectors are unlikely to see a significant increase in demand in the coming months, according to Fitch Ratings.

“Although the manufacturing industry has recovered strongly and there are many star sub-sectors, such as shipbuilding, electrical machinery, general equipment and automobiles, it is still unable to bridge the huge gap in steel demand caused by the construction recession” , the US claims. the rating agency said on Tuesday.

China’s combined iron and steel export volumes rose 13 percent in the first quarter from a year earlier, and 80 percent above pre-pandemic levels, suggesting evidence of oversupply-induced dumping behavior , Oxford Economics reported this Tuesday.

The National Development and Reform Commission, China’s economic planner, said in early April that it would continue to regulate crude steel production for a fourth consecutive year in a bid to promote “high-quality” development of the industry with a focus. on energy saving and carbon reduction.

But Fitch Ratings said that while Chinese authorities have stepped in to rein in steel production, the sector generally lacks discipline and smaller mills would restart as soon as they see an opportunity to make a profit.

China’s steel exports last year rose 36.2 percent to 90.26 million metric tons, according to Fitch Ratings.

And in the first quarter of 2024, China’s steel exports grew 30.7 percent to 25.8 million metric tons, the U.S. ratings agency added, accounting for about 5 percent of its output total

“At present, export products represented by steel are vulnerable to trade barriers due to low-price dumping, and the intensification of trade protectionism will pose a challenge to China’s steel exports,” Fitch Ratings said.