Is the future of Chinese steel manufacture bleak?….. Right now, it’s difficult to predict. China’s financial situation is indeed fragile. Furthermore, a substantial number of stock and financial specialists around the world believe the crisis will further worsen as the nation gets ready for its harshest winter yet.
The tale doesn’t end there, though. The Chinese economy was severely harmed by a financial downward spiral. The sectors for steel & iron ore have been among the hardest hit.
About a year ago, the current problem began. At that time, Evergrande, a well-known Chinese real estate developer, stated that it was unable to no longer sustain its $300 billion of liabilities.
Even if that was already enough to cause a panic, the China authorities’ slow response time made matters worse. The Chinese government has unveiled new fiscal stimulus measures. Many experts disagree, saying it was too little, too late. An additional COVID-19 epidemic, frequent power outages, and the invasion of Ukraine were all already crippling the nation’s industry.
What is undeniable is that China doesn’t seem to be the global superpower it was a year ago. Currently, the world’s media, such as this Forbes piece, claim that “what China is going through is a textbook demonstration of how an economic crisis unfolds.“
Steel Manufacturing Firms Assert that Insolvency is Imminent.
Every day that goes by, the Chinese economy weakens. And even though the government made a last-minute investment in infrastructure, they might not hit their target of 5.5% real economic growth rate.
The future looks dismal for the Chinese steel industry and the businesses that provide it with raw resources like iron ore. The profitability of the steel production industry has already drastically decreased as we move into the second half of the year.
Below 20% of businesses really reported making money in July. It’s simple to see the bleak picture when compared to the 80% of businesses that saw profitability prior to March. Only approximately five of the 25 publicly listed steel companies predicted an increase in profits for the first quarter of the year in previously issued predictions.
In addition to being a major producer of steel, China is also a major consumer of the metal. It assumed the title of the biggest steel producer in 1996, although production didn’t hit a record high of 1.07 billion tonnes until 2020. Despite these remarkable figures, almost 95% of China’s steel consumption is accounte for by local companies. The steel just has no place to go without them.
China currently has 1.2 billion tonnes of annual steel production capability, with 1 billion tonnes of yearly consumption. However, a lack of interest among real estate developers following the real estate crisis has led to the closure of numerous projects. Which has decreased demand for steel.
After all, among the largest users of steel in the nation are the real estate and automobile industries. In the meantime, almost 29% all Chinese real estate firms assert to be on the verge of bankruptcy.
Is there Only Downward Movement for Chinese Steel?
Many red flags were raised when China Baowu Steel Group, the world’s largest producer of steel, warned of the “huge problems” posed by plummeting sales, dropping prices, & declining profitability at an internal meeting. Chinese officials are responding by attempting numerous solutions.
The government also established a 20 billion yuan Goverment-owned China Mineral Resources Group in addition to the fiscal stimulus. The goal was to position itself so that it could negotiate better terms in the global steel manufacturing industry. Rio Tinto Company, BHP Company, Fortescue Metals Company, and Vale continue to hold a monopoly on this market.
So, will Chinese steel be extinct by 2022? The majority of analysts believe the answer is “yes.” These individuals believe that the steady declining trend is all that is left after China’s steel demand reaches its peak.
However, the Politburo, China’s top policy-making body, has still been stumbling over potential countermeasures to its steel manufacturing troubles due to the country’s financial crisis. One recent statement. Which so many saw as merely another instance of “shifting the buck,” was that provincial. And local governments should take charge in addressing budgetary pressures.