Steelmaker Baowu warns Chinese manufacturers struggling to survive severe recession

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The world’s biggest steelmaker has warned that Chinese manufacturers are struggling to survive a severe “winter” and longer than previous recessions, as the housing market in Asia’s biggest economy suffers a devastating slump over several years.

The “winter” or crisis in the steel industry was likely to be “longer, colder and more difficult than we expected,” Hu Wangming, chairman of China Baowu Steel Group, said on Wednesday, according to a company statement detailing the company’s recent meeting. of semester results.

The global steel sector faced devastating crises in 2008 and 2015, which led to the consolidation of fragmented producers in China. Baowu itself was formed from a merger between Baoshan Iron and Steel and Wuhan Iron and Steel in 2016.

However, state-owned Baowu’s warning suggests the latest crisis will be even more severe after the sector was devastated by weak property demand and industrial output. These, in turn, created a glut of steel that drove down prices, leading to losses at mills.

“The entire Chinese steel industry is positioning itself for consolidation,” said Colin Hamilton, commodities analyst at BMO.

Chinese steelmakers have turned to foreign markets to find a home for their products, exporting the most in the first half of 2024 in eight years, but face increasing barriers as other nations impose tariffs to protect their own industries.

New construction starts – the steel-intensive part of construction property – fell by about 24% in China in the first half of 2024, after contractions of 21% and 39% in 2023 and 2022, respectively, according to the Commonwealth Bank.

During previous market downturns, policymakers have solved the crisis with stimulus, but attempts to revive China’s housing market this time have failed.

Iron ore continued its weakness on Wednesday, falling further below the key $100 per tonne threshold.

Chinese steel mills are under pressure to cut production further to support prices and avoid heavy losses.

Hou Angui, general manager and deputy party secretary at Baowu, who is part of the key decision-making process at the state-owned firm, said “the current situation in the steel industry is worse than the recessions of 2008 and 2015,” at a recent semi-annual review meeting.

Hou called on financial departments at all levels of Baowu Steel – which produces about 7% of the world’s steel – to “pay more attention to cash flow security and develop long-term cash balance plans.”

The company should also promote extreme inventory management and move away from the traditional mindset of maintaining a certain level of safe stock, Hu added.

Weak demand depressed output, according to official data, although analysts suggested output needed to be cut further to balance the market. China’s pig iron and crude steel output fell 3.6% and 1.1% year-on-year to 435.62 million tons and 530.57 million tons in the first half of 2024, respectively, they showed figures from China’s National Bureau of Statistics.