China, world’s largest steel manufacturing country, is hit hard by waning domestic demand. The country’s consumption of crude steel dropped 4.7% to 362.31 MnT as compared to previous year.
Despite weak demand, Chinese steelmakers didn’t cut their steel supply in same proportion in anticipation that demand will gain momentum during its golden season in September.
However even during peak season demand in China didn’t pick up which resulted in fall of HRC prices. From Jan’15 till date, HRC prices have registered a fall of about 30%.
Chinese steel mills are heavily debt laden. As per the data from CISA (Chinese Iron & Steel Association) the debt-asset ratio of Chinese steel industry is about 70% which means that 70% of the industry’s assets are funded by debt.
As reported, Chinese steel prices are at same level as 15 years ago however borrowing costs and labour costs have become more expensive over that period. Thus, although steel mills there are making losses, production has not been cut as borrowers need money to pay interest costs.
Chinese steel makers earlier resorted to exports as part of expansion strategy. However now they are selling in offshore markets just to survive in the market.
China’s exports jumped 27% Y-o-Y to 83.11 MnT, while imports went down 11.6 % to 9.73 MnT.
In order to boost domestic demand, recently Chinese government announced cut in lending rate and reserve requirements by banks. Thus it is anticipated that these economic stimulus measures are likely to stabilise plummeting steel prices in China in coming months.
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