30% Chinese steel companies to go bankrupt
Steel Production in China reached 96600 thousand tonnes in May 2022. It decreased to 90700 thousand tonnes amonth later in June – amid pandemic lockdowns and crippled construction activity.
Weak demand for steel, a bellwether of China’s economy, also reflected the country’s broader slowdown.
Affected by fall in demand, more than a dozen Iron and Steel companies have decided to cut production, reduce wages, and lay off employees. These companies include Baosteel, TISCO and Shansteel Group.
The industry is expecting that 30% of steel companies go bankrupt. In addition, the reduction of steel production led to a reduction in production by upstream coke enterprises, and prices fell sharply by 40%. At present, coke enterprises in Shanxi, Inner Mongolia and other places are formulating a plan to stop production of stewing furnaces.
Affected by the sharp decline in market demand, Henan Anyang Iron and Steel Group recently issued an internal notice, saying that the company has officially notified all units that since August, the wages of employees have been reduced by 30%.
Anyang Iron and Steel Group belongs to the backbone enterprises of local governments but has to reduce production due to the decline in overall domestic demand, says Shi Qiang, a steel industry insider in Anhui. He attributed the downtrend to contraction of housing, infrastructure and manufacturing.
“The demand for steel in real estate and infrastructure accounts for about 30% of total demand, and it is mainly construction steel. In terms of demand for steel, the first is infrastructure, real estate ranked first, but also with refrigerators, washing machines and other home appliances, other infrastructure construction needs about 30% of steel, the rest is construction machinery such as trucks, excavators, bulldozers, shipbuilding, etc., now because the real estate does not start. Demand for construction machinery is also declining,” Shi Qiang said in an interview on Wednesday (Aug10).
Ten days ago, China Steelmaking Network opined that the severe form of the sharp turn of the steel industry may last for many years.
Shandong Guangfu Group Co., Ltd. has completely suspended production since July 19, and the resumption time has yet to be determined.
Affected by the decline in industry profits, some employees of Jiangsu Haoxin Iron and Steel have taken the initiative to control production; output of molten iron in the factory has declined.
Jiangsu Shagang Group proposed “not only to reduce the direct investment as much as possible, but also to fully consider the actual operating costs after the project is put into operation”.
Baosteel stressed that July and August will be the most difficult two months of operation. Hebei Puyang Iron and Steel said that steel mill profits shrank by more than 50%. In May, one-third of the steel companies lost money, and in June, the loss continued to increase, and in July, all the industry fell into losses.
Counter-cyclical adjustment of steel prices to prevent crashes but this time dangerous.
Tongling Fuxin Iron and Steel Group recently issued a notice that if the employee himself submits his resignation, the salary will be paid until the end of 2022; wages will be cut by 30% from August, and it is limited to declarations before August 15.
Shi Qiang said that at present, almost all steel companies are laying off employees. “Now we are losing money, so there is only a reduction in production.”
“Many steel mills are limiting production, like for instance, 2 million cap if the capacity is 5 million tons. Less supply translates into price rise. Last week, steel prices rose by more than 100 yuan (RMB) per ton. However, in order to prevent large-scale unemployment and turmoil, our country always adopts counter-cyclical adjustment and always does not let this bubble burst, but this time it may be more dangerous,” he opined.
Steel production cuts led to 40% drop in coking coal prices.
According to reports, on July 18 and 21, the China Coke Industry Association met to discuss the reduction of production of member coking enterprises. At present, the production limit in Yunnan-Guizhou, Inner Mongolia, Ningxia and other places has reached more than 40%, and the production limit in Shanxi, Hebei, Shandong, Henan, Jiangsu, Anhui and other places has reached about 30%. Since June 20, the price of coke has fallen by 920 yuan per ton.
Current affairs commentator, Hong Xiaoming, says not only the steel industry, but also processing companies have encountered the problem of not getting orders this year.###
— Based on a RFA report, Aug 10, 2022 , 02:51 ET
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