The world’s top steelmaker has added its voice to the growing sense of alarm among China’s mills over crisis conditions in the industry due to poor demand and plunging profits.
China Baowu Steel Group warned of headwinds due to a “complex macro economy” and the severe impact of Covid flareups across the country, according to a posting on the group’s WeChat account. Weak demand, falling prices and declining profitability are causing “great challenges” for the sector and testing the group’s production and operations, it said.
The following is the cause:
Notice that Chinese starts have much further yet to fall over the remainder of H2, and that’s assuming sales stabilise at last year’s levels over the period.
Infrastructure stimulus that is only replacing lost land sales revenue cannot save this. As demand falls, and the steel price joins in, mills will have no choice but violently destock raw materials.
It may not happen until the seasonal weakness of September but it’s odds-on to be coming.
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.
