China’s steel industry, the world’s largest, is bracing for a crisis more severe than the downturns of 2008 and 2015.
The industry’s top player, China Baowu Steel Group Corp., has issued a stark warning, likening the current downturn to a “severe winter” and emphasizing the urgent need for cash preservation.
The crisis will likely be “longer and more difficult to endure than we expected,” noted Hu Wangming, Baowu’s chairman, during the company’s mid-year meeting.
His comments reverberated across global markets, sending iron ore prices tumbling to their lowest point in a year, while rebar futures in Shanghai dropped over 4%, hitting their weakest levels since 2017.
China’s steel market—an economic behemoth—now faces multiple red flags.
A downturn in the property sector, coupled with weaker factory output, has slashed domestic demand, driving prices to multi-year lows and leaving mills deep in the red.
Baowu, which produces roughly 7% of the world’s steel, serves as a bellwether for the industry, and Hu’s warning is likely to reverberate among steelmakers across Asia, Europe, and North America as they brace for a surge in Chinese exports.
This isn’t the first time China’s steel sector has been on the ropes.
The Global Financial Crisis and the slump in 2015-2016 dealt severe blows to the industry, but both were mitigated by large-scale government stimulus.
However, in 2024, such a lifeline seems increasingly unlikely as President Xi Jinping steers the economy in a new direction.
Baowu’s focus is clear: survival. The company’s statement highlighted the need for tight cash management and risk minimization.
Financial departments were urged to “pay more attention to the security of the company’s funding,” stressing the importance of strengthening controls, particularly on overdue payments and detecting fake trades.
“In the process of crossing the long and harsh winter, cash is more important than profit.”
As production remains pressured, iron ore stockpiles continue to grow, and the price of reinforcement bars—essential in construction—has plunged to its lowest since 2017.
The grim reality? It’s becoming increasingly unprofitable to produce steel.
Meanwhile, China’s steel exports are on track to exceed 100 million tons, the highest since 2016, as domestic challenges push mills to seek markets abroad.
The message from Baowu is unmistakable: the steel industry is in for a rough ride, and only the fittest will survive this grueling winter.
In the broader business community, this crisis is a stark reminder of the unpredictable nature of global markets.
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