Is China losing its dominant position in the global steel market?

By Metal miner

Amid continued reports of an economic downturn with little or no sign of improvement, now comes a report that the Chinese government has suspended the system that allows new steel mills to be approved. It’s a move that could have significant implications for the Chinese steel industry and global steel production as a whole.

Conformable BloombergChina’s Ministry of Industry and Information Technology recently said it had decided to end the current mechanism by which the construction of new steel plants was allowed as long as steelmakers first shut down some of their existing facilities. The ministry also mentioned plans to create a new approval process, but did not provide a timetable. For years, the Chinese government has insisted on removing existing capacity as a prerequisite before granting permission to build a new plant.

Looks like those rules are history, for now.

The move surprised almost everyone in the steel sector, but led to mostly weak reactions. Just as frequently reported by MetalMiner in the past, China’s steel exports have grown over the past two years and are currently at their fastest pace since 2016.

China relies on exports to manufacture steel buoys

China is the world’s largest producer of steel, accounting for more than 50% of global production, or about one billion tons per year. But post-COVID, Chinese steel mills have struggled to find domestic customers and are now resorting to dumping cheap steel products into as many markets as possible. In response, many of the steel industry leaders in these countries continue to protest.

According to a Bank of America estimate, five Southeast Asian countries, including Vietnam, Thailand and Malaysia, will absorb 26 percent of China’s steel exports in 2023 alone. Steelmaking titans such as ArcelorMittal SA have also complained of these exports. In addition, the lack of concrete measures announced at China’s Third Plenum has dampened hopes that the country’s struggling real estate sector will recover from the recession.

In fact, just a few days ago, Hu Wangming, the boss China Baowu Steel Group Corp., told employees at the company’s semi-annual meeting that conditions in the country were like a “harsh winter” that could get longer, colder and even more difficult. He also warned that China’s steel industry faced a worse situation than the crises it endured in 2008 and 2015.

Iron ore prices fall amid falling demand

The Bloomberg report mentioned above also covered the Chinese Ministry warning that the steel industry is facing difficult times, especially in terms of the relationship between supply and demand. It stated that many problems still remain, such as inadequate policy implementation and imperfect oversight and enforcement mechanisms.

With domestic steel consumption falling, iron ore prices have fallen substantially, losing about 10% this quarter and hitting their lowest point since 2022. So far, ore prices have fallen more than 28% in 2024.

Reasons for the decline of China’s steel industry

One of the biggest disappointments for China’s steel mills has been China’s real estate sector, which continues to be sluggish despite government efforts to pull it out of the quagmire. IN A interview with CNBC, Sabrin Chowdhury, head of commodities analysis at BMI, said that Chinese demand for steel and iron ore remains disappointing as the continued decline in China’s housing market has a negative impact on industrial metals needed for infrastructure.

According to a recent report by Greek company Ursa Shipbrokers, China’s steel industry is suffering weak demandlower profitability for mills and government directives to limit annual production growth. Ursa analysts point out that only 5% of Chinese steelmakers are making a profit today, especially as steel prices continue to fall, with rebar futures hitting a four-year low. The continued decline in the country’s real estate sector, which saw a 10.2% drop in investment, has significantly reduced steel demand.

By Sohrab Darabshaw

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