The Chinese steel industry is
going through a “winter”, according to the head of the world’s largest steel
producer, with analysts warning the sector – vital for capesize owners – faces
prolonged decline.
Steel production in July dropped by 9% year-on-year reaching
82.9m tonnes according to the National Bureau of Statistics, the lowest figure
reported in 2024. Generally Chinese steel production has slowed in 2024 and is
year-to-date 2.2% behind 2023 numbers.
The decline is driven, according to a new report from Greece’s
Ursa Shipbrokers, by weak demand, reduced profitability for mills, and
government directives to keep annual production growth at zero.
Ursa analysts note that only 5% of Chinese steel producers are
currently profitable, as steel prices have dropped significantly, with rebar
futures hitting a four-year low.
The prolonged slump in China’s property sector, with a 10.2%
drop in investment, has heavily impacted steel demand.
Hu Wangming, chairman of the world’s largest steel producer,
state-owned Baowu Steel, recently said the steel industry was going through a
“winter,” adding that the industry was in the midst of a long-term adjustment
period.
Following weaker domestic demand, Chinese steel producers are
searching for new markets. In the first half of 2024 China increased exports by
24% year-on-year, and industry experts believe exports will grow 27% in 2024.
China’s steel exports have “flooded” global markets, according
to a recent report from MB Shipbrokers, which has led to a 26% year-on-year
drop in global steel prices. Consequently, many countries are now imposing
restrictions to protect their domestic producers, raising doubts about whether
China’s high export levels can be sustained.
“With weak domestic steel demand, high iron ore inventories, and
concerns about the future of steel exports, iron ore imports could face a
correction in the near future,” MB Shipbrokers warned, something that could
have a negative impact on capesize freight for the rest of the year.
Excavator sales in China are expected to be down 8% year on year
for fiscal year 2024, Citi wrote in an August note. Excavator sales are usually
seen as a leading indicator of construction activity, and by extension, metals
demand.
Despite the headwinds facing the property and steel sectors in
China, capes have been trading in a narrow, profitable range of between $19,000
and just over $23,000 over the past month.
This comes despite a weakening steel market globally, with
Chinese hot-rolled prices falling from $500 a ton to $450 a ton since
mid-July.
“The softer steel prices have impacted iron ore prices as well
though seaborne cargo movements remain elevated. This is due in part to much
lower China domestic iron ore production recently,” analysts at investment bank
Jefferies noted.