China’s steel industry is currently facing significant challenges as a result of the falling property market, which has had a direct impact on demand for steel products. According to a report by Bloomberg on August 16, steel prices are plummeting, and profits are shrinking, with little relief from the government. This comes at a time when China is focused on reshaping its economy in the long run, leading to concerns about the future of the steel industry in the country.
The report highlights that the Chinese government has not yet delivered a solution to the real estate market slump, which is crucial for maintaining high levels of steel consumption. As government officials discuss strategies to increase consumer spending and boost high-tech industries, the demand for steel is expected to decrease this year. This has raised concerns among analysts, with Tomas Gutierrez from Kallanish Commodities stating, “There are not many positives for steel, and the housing downturn has years to go yet.”
One of the key concerns for China’s steel industry is the slowdown in demand caused by the property market slump. According to Kallanish, construction activities have seen a 10% decrease in steel demand this year, leading to a significant drop in total consumption levels. While sectors like consumer appliances and shipbuilding are expanding, they are not large enough to offset the impact of the property market on the overall economy. Overall domestic demand for steel fell by 1% in 2024, according to the report.
Wei Ying, an analyst at China Industrial Futures, highlighted the poor state of steel demand, stating, “With highly indebted provinces focusing on deleveraging, plus a lack of good projects, infrastructure spending is less than ideal.” This indicates that the challenges facing the steel industry in China are multifaceted and require a comprehensive solution.
The slowdown in demand has also led to a decline in steel prices, with products like Steel Rebar and Hot-rolled coil reaching their lowest levels in years. Producers are facing losses on every ton of steel produced due to higher costs and lower selling prices. Additionally, the government’s new quality standards for Rebar have created uncertainty in the market, leading to a panic sell situation before the rules come into effect.
China’s aggressive export of steel products is also causing problems for the global steel industry, with the US and European prices falling below cost. This has been attributed to the highest China shipments since 2016, impacting mining giants like BHP Group Ltd. and Rio Tinto Group. The slowdown in the steel industry has also had a material impact on iron ore prices, with Futures in Singapore falling close to 30% since the end of 2023.
In conclusion, the challenges facing China’s steel industry are significant and require urgent attention from both the government and industry stakeholders. The impact of the falling property market on steel demand, coupled with aggressive exports and declining prices, paints a bleak picture for the future of the industry. It is essential for all parties involved to work together to find sustainable solutions to ensure the long-term viability of the steel industry in China.