In the whole of 2015, the steelmakers in China manufactured close to 790 million tonnes of finished steel products. This output created a loss-making situation of US$15.5 billion, which represented a total negative return for the steel sector of almost US$20 per tonne of steel supplied, said MEPS International in a snippet.
Combined losses of China’s major steel producers in the first two months of the current year amounted to US$1800 million, according to CISA, the industry association. This equates to a deficit of approximately $27 for every tonne of steel produced in the period.
Clearly, losses of such magnitude could not be sustained in the long term without subsidies in some form. This is more poignant now that the Secretary General of the country’s Iron and Steel Association is reported to have stated that the flood of Chinese steel exports is damaging the country’s efforts to gain market economy status. He is also reported to have stated that controlling steel output is more important than just cutting capacity. MEPS is in full agreement with this statement. Many of the recently reported plant closures were of obsolete facilities which did not reduce effective capacity.
The substantial upturn in offer prices by the Chinese mills – which was put in place in March and continued into April – created a recovery in both local and export market demand. This was translated into a rise in global selling figures, as the main driver for negative price pressure was removed. It highlights the influence that low-priced exports from China had on steel selling values across the world in recent times.
The Chinese steel sector is reported to have returned to profitability in March and April – based almost entirely on rising selling figures. However, a deficit still remains after five months of operation in 2016. It is notable that domestic steel prices in May are in decline and are likely to influence global steel prices, at least in the short term.
The fact that ownership of the majority of China’s steel sector is in the hands of local or national government is not benefiting its case in its quest to obtain market economy status. The recent sale of steel in export markets at prices below the cost of production is not providing any assistance. The case is also plagued by the prevalence of anti dumping suits brought against Chinese exports by numerous governments around the world.
Many steel enterprises have had periods of time when they have been in a loss-making situation and sold material in export markets. However, with China’s presence in the steel sector – producing half the global output and having by far the most significant share of the total market – the threat to other countries is enormous. This fact should have been considered before the Chinese mills set out on their investment strategy which required exports for sustainability.
The majority of the Chinese steel companies are under some form of local or national state ownership – most of these have been making substantial losses and increasing their volume of exports. Moreover, it is highly questionable whether the steel sector in China has been operating in a way that is understood, by most people in international trading, to be market status as defined by the WTO.
Source: Scrap Register