Chinese steel mills face ruin

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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Comments

  1. migtronixMEMBER

    Well rebar/hrc is not moving at all so I have no idea how the mills are making money…

    • It sucks to be in an industry with apocalyptic overcapacity.

      No one is making money but the Chinese are still building new steel mills. A great example of how more GDP (from the construction of new mills) can destroy real wealth.

      The question is when will the losses be realized and who will bear the cost of this mal-investment?

  2. If Hebei, Baosteel, Wuhan, Shandong or a handful or so of other majors default, yeah, worry a little. There are thousands of steel producers in China, many of which official policy will not be sad to see go. Defaults will be tolerated on a selective basis.

  3. The chinese can easily lose 5 to 10% of capacity in steel making, particularly if it is smaller, old, dirty, close to large populations.

    5% of capacity is almost irrelevant. The production will be taken up elsewhere or won’t be needed.

  4. Won’t consolidation of the Steel Industry affect the profitability of the larger Steel mills then as they are generally making money by jacking up the price of iron ore for smaller mills?