Chinese steel makers have warned yesterday that next 3-5 years will be very bleak for the sector with many mills shutting down while others will be faced with razor-thin margins.
“The next 3-5 years will be a harsh winter for Chinese steel sector and there will be no significant turnaround because the surplus is too big but no one wants to cut production. China’s total steel capacity is now close to 1 billion tonnes but demand is just hovering around 700 million. So what should we do with the balance 300 million tonnes?” Yang Siming, Chairman of Nanjing Iron & Steel Group, told an industry conference held in the southeastern city of Suzhou.
China accounts for half of worlds steel output and most steel mills are owned by the state willing to sacrifice profits for employment.
“We also have high inventories and we have to reduce stocks, even if we were to sell them at a loss,” Jiang said.
As a result, price of iron ore, input in steel making, has recently collapsed and Brazil’s Vale, world’s second largest miner, says that it is surprised at the price drop and expects prices to rebound.
“I was surprised by the decline. Below $120 many iron-ore producers can’t make money, and above $180 a tonne steelmakers have problems,” said Vale’s CEO Jose Carlos Martins.
Chinese steel developments matters because what happens in this sector correlates greatly with what happens with the Chinese economy overall.
