International Steel Mills

China Steel Mills Expect Losses Exceeding $8 Billion for 2015

January 3, 2016

The China Iron and Steel Association reported that Chinese steel mills suffered losses of approximately $8.18 billion dollars in the first eleven months of 2015. Revenue fell 19.3 percent year over year for the 101 large and mid-sized steel mills that CISA tracks.

With falling steel demand at home, China steel exports surged in the past two years to be met by a wave of trade actions around the globe. Crude steel production dropped 2.2 percent to 738.38 million tonnes from January through November of 2015, according to data from the National Development and Reform. Attempts to reduce overcapacity through consolidation and production cuts are expected to take time.

Jiming Zou, a Shanghai-based vice president at Moody’s Investors Service, estimates China’s total steel production this year will be about 800 million tons, while the demand will be around 710 million tons.

Weak demand, oversupply and low raw material prices resulted in Chinese steel prices falling by more than 73 percent in the past two years according to Zhang Yichen, an analyst with Yongan Futures Research Academy. As exports surged, steel pricing around the globe fell as well, exacerbated by additional tension from the energy sector and a collapse of iron ore pricing.

Commenting on low pricing due to the oversupply of Chinese steel, Kosei Shindo, president of Nippon Steel Sumitomo Metal, told The Nikkei, “Almost every steelmaker across the globe is falling into the red. It is said that even Chinese companies have recently seen steel prices fall below manufacturing costs, so this situation will not last. However, it would be wise not to expect any dramatic improvements in the short term.”

Colin Hamilton, head of commodities research at Macquarie Group Ltd., told Bloomberg that hot rolled coil pricing may decline about 13 percent this year.

“We’re past peak steel demand,” Hamilton told Bloomberg earlier this month. “I think, provided there is overcapacity in the Chinese system and given where demand is, it’s going to be like this for some time.”

Macquarie is forecasting the average ton of steel to cost $267 per ton in 2016 compared to $309 per ton last year.