The Chinese steelindustry is currently experiencing a significant downturn, often described as a"winter" by Hu Wangming, the chairman of Baowu Steel, the world'slargest steel producer. Analysts are increasingly concerned that this sector,which is crucial for capesize ship owners, is facing a prolonged decline.According to the National Bureau of Statistics, steel production in July 2024dropped by 9% year-on-year, reaching just 82.9 million metric tons, marking thelowest output recorded this year. Overall, steel production in China has sloweddown in 2024, trailing 2.2% behind the figures from 2023.
Thisdecline is attributed to several factors, as outlined in a recent report byGreece’s Ursa Shipbrokers. Weak demand for steel, combined with reducedprofitability for mills, has been exacerbated by government directives aimed atcapping annual production growth at zero. The report highlights that only 5% ofChinese steel producers are currently profitable. Steel prices have plummeted,with rebar futures hitting a four-year low, adding to the financial strain onthese producers.
Theongoing slump in China’s property sector has further impacted steel demand,with investments in this area dropping by 10.2%. This decline in constructionand real estate activities has created a ripple effect, reducing the overallneed for steel. As a result, steel producers in China are now actively seekingnew markets to offset the weakening domestic demand.
Inresponse to these challenges, China has ramped up its steel exports. In thefirst half of 2024, exports increased by 24% compared to the previous year, andexperts predict a growth of 27% by the end of 2024. However, this surge in exportshas led to a "flood" of Chinese steel in global markets, as reportedby MB Shipbrokers. Consequently, global steel prices have dropped by 26%year-on-year, prompting various countries to impose restrictions to protecttheir domestic steel industries. This raises questions about the sustainabilityof China’s high export levels in the face of increasing international scrutiny.
Furthermore,the report from MB Shipbrokers warns that the combination of weak domesticsteel demand, high inventories of iron ore, and uncertainty surrounding futuresteel exports could lead to a correction in iron ore imports. Such a shiftcould negatively impact capesize freight rates for the remainder of the year,posing additional challenges for shipping companies reliant on this trade.
Anotherindicator of the construction sector's health is the sales of excavators inChina, which are projected to decline by 8% year-on-year for the fiscal year2024, according to a note from Citi. Excavator sales typically reflectconstruction activity and, by extension, the demand for metals. This furtherunderscores the challenges facing
