China Warns Of Severe Steel Industry Crisis Amid Economic Slowdown

China’s steel industry, the largest in the world, is experiencing a crisis more severe than the downturns of 2008 and 2015, according to Hu Wangming, chairman of China Baowu Steel Group Corp. The warning comes as domestic demand plunges, prices hit multi-year lows, and steel mills struggle with mounting losses.

A Crisis Worse Than Expected

During a half-year company meeting, Hu compared the current situation to a “severe winter,” emphasizing that the crisis is likely to last longer and be more challenging to endure than previously anticipated. Baowu Steel, which produces about 7% of the world’s steel, urged its employees to focus on preserving cash and minimizing risks to navigate the tough times ahead.

Impact on Steel and Iron Markets

Hu’s comments triggered further declines in iron ore and steel markets. Iron ore prices dropped to their lowest level since last year, while rebar futures in Shanghai fell more than 4%, reaching their weakest point since 2017. This downturn is primarily driven by a slump in China’s property market and weaker factory activity, both of which have severely affected domestic steel demand.

Challenges Facing the Industry

China’s steel market is sending alarming signals, with iron ore inventories piling up and reinforcement bar prices hitting their lowest levels in years. As a result, it’s becoming increasingly unprofitable for mills to produce steel, leading to potential production cuts. Despite the domestic challenges, Chinese steel exports are expected to exceed 100 million tons, the highest since 2016, creating concerns for global steel producers.

Preparing for a Harsh Winter

Baowu Steel’s strategy to weather the storm focuses on financial stability. The company has emphasized the importance of securing funding, strengthening financial controls, and avoiding risks such as overdue payments and fraudulent transactions. Hu stressed that in this challenging period, “cash is more important than profit.”

As China’s steel industry grapples with these difficulties, the outlook remains uncertain, and the possibility of massive government stimulus, which helped the industry recover in past crises, appears remote under President Xi Jinping’s current economic strategy.