After the collapse of the real estate bubble in China, the demand for steel has drastically decreased. The once resilient Chinese steel industry is rapidly deteriorating, facing a major reshuffle as it teeters on the brink. Meanwhile, China has begun exporting a large amount of steel overseas, prompting multiple countries to implement anti-dumping measures.
In early August, the blast furnace operating rate of 247 steel plants in China was 81.28%, a decrease of 1.05% from the previous quarter; the iron smelting capacity utilization rate of blast furnaces was 81.28%, down by 0.74% quarterly; and the profit margin of steel plants was 6.49%, a decrease of 8.66% quarterly.
Furthermore, 17 steel smelting listed companies recently disclosed their performance forecast for the first half of 2024, with 14 of them projecting losses totaling over 11.4 billion yuan, while only three companies forecast profits. Among them, Ansteel, one of the leading steel companies, reported a loss of 2.679 billion yuan. Additionally, Anyang Steel incurred a loss of 1.26 billion yuan, and Magang Steel suffered a loss of 1.148 billion yuan.
As of the first half of 2023, companies like Liugang Steel, Zhongxin Special Steel, Magang Steel, Baosteel, Nangang Steel, and Baotou Steel had debt-to-asset ratios exceeding 60%, with several surpassing 70%. Some companies, such as ST Xigang at 95.24%, Bayi Iron and Steel at 92.62%, Anyang Iron and Steel at 83.53%, and Hesteel at 73.06%, had insufficient monetary funds to cover short-term debts.
Facing widespread losses in the industry, the Chairman of Shandong Iron and Steel Group, Hou Jun, stated that the steel industry has entered a period of severe adjustment, where intermittent losses and long-term low profitability will become the norm. Similarly, Meng Fanying, Chairman of Baosteel Group, indicated that the steel industry is experiencing an “Ice Age,” facing the harsh reality of fierce competition.
Hu Wangming, Chairman of Baosteel, bluntly stated that the Chinese steel industry is undergoing a “harsh winter” that will be longer, colder, and more challenging than expected, warning that the challenges ahead will be more severe than those faced in 2008 and 2015.
Chen Leiming, Executive President and Secretary-General of the China Nonferrous Metals Industry Association, believes that the current situation is more severe than in 2015, with over 30% of steel companies in China expected to exit the market, and 70-80% of trading companies likely to disappear.
On July 25th, the China Corporate Bankruptcy and Reorganization Information Network revealed that Dongling Group had been applied for bankruptcy reorganization by Shaanxi Libang Software Co., Ltd. Dongling Group, a “billion-dollar level” steel enterprise, encompasses companies like Shaanxi Dongling Resources Co., Ltd., putting its 18,000 employees at risk of unemployment and potentially impacting the local economy.
Bankruptcy cases in the steel industry began spreading gradually in March this year, with companies like Baotou Yulun Steel Trading Co., Ltd. and Sichuan Baon Jia Chuang Trading Co., Ltd. facing financial crises post-Chinese New Year. Since October 2023, multiple steel trading companies in China have declared bankruptcy, including Wuxi Chengyouxin Steel Trading Co., Ltd., Wuxi Angang Steel Trading Co., Ltd., Nantong Changyi Steel Trading Co., Ltd., Nantong Junye Steel Trading Co., Ltd., Qidong Ningxin Steel Trading Co., Ltd., and Sichuan Jinchuan Steel Trading Co., Ltd.
In response, the Wuhan Metal Materials Distribution Association issued a warning that an invisible “severe cold” epidemic is spreading among steel trading enterprises.
Among the numerous bankruptcy cases, it’s worth mentioning the plight of Yunnan Yongchang Group, one of the top five steel conglomerates in Yunnan Province, with 31 companies facing insolvency earlier this year, leading to a failed auction on Taobao three times in a row.
Facing an imminent industry bankruptcy crisis, Baosteel’s Chairman, Hu Wangming, highlighted that the Chinese steel industry has entered a phase of reducing production and adjusting its structure, where a batch of steel companies will inevitably be eliminated from the market.
The collapse of the steel industry, once hailed as the backbone of Chinese manufacturing, is now in distress due to a comprehensive downturn in downstream demand. The primary steel consumption sectors focus on the traditional pillars of real estate, machinery, and infrastructure, with the real estate sector, accounting for about 25% of China’s GDP, experiencing a significant decline following the debt crisis of Evergrande Group in 2020, triggering a ripple effect that swiftly impacted the steel industry.
According to data from the China Iron and Steel Association, crude steel consumption volumes in 2021, 2022, and 2023 were 990 million tons, 960 million tons, and 933 million tons respectively, marking a continuous decline for three consecutive years falling below 1 billion tons. This is over 100 million tons lower compared to the peak in 2020 at 1.05 billion tons.
For the steel industry, 2022 was a turning point, leading to a steep downward spiral and financial distress in the industry. Data released by the National Bureau of Statistics of China revealed that in 2022, the steel industry’s profit plummeted to only 36.6 billion yuan, a dramatic decrease of 91.3%.
Among the top 30 Chinese steel industry listed companies in terms of net profit in 2022, only 2 showed year-on-year profit growth, with the remaining 28 companies experiencing double-digit or even triple-digit percentage plunges in their profits. One of the industry leaders, Baosteel, witnessed a steep 48.43% year-on-year decline, while Anyang Iron and Steel reported a staggering 411.18% profit decrease.
China’s annual steel production exceeds 1 billion tons, accounting for over half of the world’s production. However, following the real estate collapse in China, domestic demand sharply declined, leading to excess steel production and a continuous decline in prices. Data from financial information provider Wind indicates that the price of rebar steel in China has dropped by over 20% this year, reaching 3,208 yuan per ton.
On the other hand, with shrinking domestic demand, China has significantly increased the export of steel products overseas. In 2023, China’s steel exports reached a seven-year high of 90.26 million tons, a 36.2% increase year-on-year. Market forecasts estimate that Chinese steel exports in 2024 will reach 100 million tons.
German steel giant ThyssenKrupp announced a profit decline on August 14, highlighting the challenges faced by the steel industry. Luxembourg steelmaker ArcelorMittal stated that the surge in Chinese steel exports has put the global steel market in an unsustainable state.
Data from the Latin American Steel Association (Alacero) shows that China’s share of the global steel market has risen from 15% to 54% in the past 20 years, with Latin America importing a record 10 million tons of Chinese steel in 2023, a 44% increase year-on-year. In response, countries like Mexico, Chile, and Brazil have raised steel tariffs from nations that lack free trade agreements as countermeasures.
On August 7, Chile’s largest steel mill, Huachipato, announced an indefinite suspension of operations despite increasing tariffs due to the inability to compete with the surge of steel imports from China.
In Asia, Thailand recently imposed anti-dumping taxes on hot-rolled steel coil imports from China. Last September, India also levied anti-dumping duties on hot-rolled steel coil imports from China. Additionally, the Ministry of Industry and Trade of Vietnam initiated investigations into certain types of hot-rolled coil imports from China and India.
In a noteworthy development, Nippon Steel of Japan announced terminating its joint venture business with Baosteel by the end of August after half a century of cooperation since providing blast furnace technology, citing the difficulty of expanding business in China due to the rise of local electric vehicle manufacturers and the challenging environment for Japanese automakers in China. Resources will now be focused on the U.S. and India markets.
In 1978, during a visit to Japan by then Chinese leader Deng Xiaoping following the signing of the Sino-Japanese Peace and Friendship Treaty, he requested Japan Steel’s involvement in building a steel mill similar to theirs in China. Japan Steel quickly extended a hand, assisting in the establishment of Baosteel, creating China’s first modern blast furnace and marking a symbolic project in China’s industrial modernization process following the country’s reform and opening up in 1978.
However, in October 2021, Japan Steel filed a lawsuit with the Tokyo District Court against Baosteel and Toyota Motor Corporation for patent infringement related to non-oriented electromagnetic steel sheets, seeking a total compensation of 20 billion yen (about 138 million USD) from both companies. The once mentoring relationship turned into a legal dispute, symbolizing a significant shift in the era of political-led economic exchanges between China and Japan.
Media veteran Ishiban Akio stated on Voice of America video program on July 26th that the termination of the joint venture between Japan Steel and Baosteel signifies the gradual divergence of politically driven economic exchanges between China and Japan, marking the end of the era where “steel reigns supreme,” with the Chinese Communist Party’s protectionism and disregard for business norms making survival increasingly difficult for foreign companies in China.