Chinese steel mills face ruin

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Mac Bank has its proprietorial China steel mill survey out and the news is poor. Steel profitability has literally collapsed:

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New orders have also collapsed:

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But at least construction has showed some seasonal life:

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The FT’s Beyond BRICS has more:

“Looking at profitability, it is clear why the smaller mills are making the largest cuts (in production) – for the first time in the history of the steel survey not one smaller mill reported that they are making money.”

Hamilton said debt defaults in the steel industry are a distinct likelihood, given that Beijing is “trying to change the mindset” so that at least some of those companies that deserve to fail do fail.

“I don’t think the government would mind if we saw a few more defaults (in the steel industry),” Hamilton said, noting the failure of a privately-owned steel mill, Haixin Steel, to repay loans that fell due this month.

The survey showed, unsurprisingly, that mills plan to purchase less iron ore over the next month than they did during the last survey. Iron ore inventory is still falling among smaller mills and is now also falling at mid-sized mills, while the larger mills have seen small increases, the report said.

Any steel mill default will trigger renewed panic selling of the huge port pile and downside gapping in spot iron ore. Australian iron ore equities continue to trade on a cloud of hope.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.