From Macquarie:
China’s Hebei province, the world’s largest steelmaking region (with output ~1.5x that of Japan), has published a document around its plans to tackle the problems in the industry. As part of this, local governments are being told to set up special funds to assist with capacity closures and restructure debt – the latter being the particular Achilles heel for steel producers. Moreover, inefficient capacity will face punitive power and water prices. However, the province also suggested steel mills should be encouraged to boost exports to ease the supply glut.
This is not something international steel producers will want to hear, given Hebei alone exports around 40mt on a crude steel basis – roughly a third of China’s total. Nor will they want to hear that capacity is still being added in China, with Baosteel confirming their 9mtpa Zhanjiang facility is set to be commissioned later this year. We reiterate our view that the global steel industry will be facing Chinese exports of around 100mtpa for the foreseeable future, and that anywhere between 175 and 250mtpa of capacity will need to be removed to bring the global steel industry back to a healthy utilisation rate.
