China, the world’s top steel producer warns of ‘severe’ industry crisis

The property downturn and weaker factory activity in China ravaged domestic steel demand this year, prices plunged to multiyear lows and mills racked up losses

China’s steel industry is facing a crisis more serious than the downturns of 2008 and 2015, the world’s biggest producer warned, highlighting a need to preserve cash and likening conditions to a “severe winter.”

An employee works next to molten iron at a steel mill of Dongbei Special Steel in Dalian, Liaoning province, China. (Stringer/REUTERS)

The crisis will likely be longer and “more difficult to endure than we expected,” Hu Wangming, chairman of China Baowu Steel Group Corp., told the company’s half-year meeting, according to a statement.

Hu’s comments contributed to fresh weakness across iron ore and steel markets on Wednesday. The raw material plunged to its lowest since last year, and rebar futures in Shanghai slumped more than 4% to trade at their weakest since 2017.

China’s steel market — by far the world’s largest — is flashing multiple warning signs as the property downturn and weaker factory activity have ravaged domestic demand this year, with prices plunging to multiyear lows and mills racking up losses. Baowu alone produces about 7% of the world’s steel, and 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.

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,” the 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.”

As mills struggle, iron ore inventories are swelling, while reinforcement bar, used in construction, is cheaper than at any time since 2017. It’s increasingly unprofitable to make steel, putting mills under pressure to cut production. Meanwhile, exports are on course to top 100 million tons, the most since 2016.