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Chinese steel industry suffers huge losses

03 November 2015
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The Chinese steel industry suffers huge losses due to lower demand on the domestic market - the CISA (China Steel and Iron Association) reported.

According to the report published on the CISA website, Chinese steel manufacturers face huge losses since the beginning of the year. In the first 6 months of this year collective losses of 150 largest Chinese enterprises amounted to about 4.4 billion US dollars. From June to September, this amount almost doubled to 8.7 billion US dollars.

Zhu Jimin, vice president of the CISA, says the bad state of the domestic steel industry is caused by the decrease in demand for steel, "The economic slowdown has led to a significant reduction in consumption of rolled steel ..."

After years of seemingly limitless growth and consumption, today's steel market simply oversaturated by production capabilities that are far above actual consumption. Chinese authorities tried for longer time to persuade steel manufacturers that they need to make significant efforts to reorganize the companies, and even to close all or parts of the plants. However, manufacturers didn't listen this advise. Logically, when on the other side the government still enables (not to say encourages) the continuation of the production policy by other methods, and the world market was simply too big bait.
Seeking a way out of their own products, the Chinese steel industry recklessly occupied all markets of the world, from India, the Middle East, to Europe and the Americas, bringing down prices and choking demand.

Market analysts, as well as the producers themselves, agree that the demand for steel significantly fell, and that the steel industry didn't appropriately accomodated to the situation. As they were all expecting that someone else will pull the brake and bear all the burden for them. If such choise ever existed, it's now gone. Oversupplied steel market, record low prices and stagnant demand are factors that require steel manufacturers in China to reduce its production capacity and shift the production to more specialized products.

Europe and the USA made decisions to reduce production capacity by 20 %. On the other hand, despite the Chinese announcement that at the beginning of 2016 they will close many factories, there is no indication that they will have the same decrease in production.

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