Baowu Steel worries China industrial crisis could spread globally.
The world’s largest steelmaker has sounded the alarm that a Chinese industrial crisis could spread globally and plunge the industry into an even deeper economic downturn.
Conditions in China’s steel sector resemble a “harsh winter” that will be “longer, colder and tougher than we expected,” Hu Wanming, chairman of China Baowu Steel Group Corp., said at the company’s midyear meeting.
He warned of a bigger problem than those seen in the tough years of 2008 and 2015.
Global investors are focusing on China’s struggling economy, even as they also eye the possibility of a U.S. recession as the Federal Reserve has been slow to embrace its interest-rate-cutting cycle, according to some experts.
In commodities including steel, Baowu’s warning highlights the risks to demand and prices, as well as the risk that what Arcelor Mittal, the industry’s second-largest producer, called an “aggressive” surge in Chinese exports could put severe pressure on prices around the world.
China’s steel market — by far the world’s largest — is showing multiple warning signs as a prolonged housing slump shows no sign of ending while factory activity remains subdued. Baowu alone produces about 7% of the world’s steel, and its comments are being closely watched to gauge market sentiment in the Asian country.
Hu’s blunt statement is likely to worry rivals across Asia, Europe and North America as they grapple with a new wave of Chinese exports, often insisting that their governments protect their products with tariffs.
China’s exports could reach nearly 100 million tonnes this year, the most since 2016, as producers try to offset a slump in steel demand at home.
German steelmaker ThyssenKrupp highlighted the industry’s woes on Wednesday, reporting a big drop in profits. Arcelor Mittal said earlier this month that China’s growing exports had left the global market in a “precarious” position.
Singapore iron ore futures fell as much as 3.4% to $95.20 a tonne, the lowest since May last year. The collapse in steel markets was even more pronounced, with Shanghai rebar futures falling more than 4% to their lowest since 2017. Shares in BHP, which gets most of its revenue from selling iron ore to China, fell nearly 3%.
China’s steel industry suffered devastating downturns during the 2008-09 global financial crisis and again in 2015-16. Both crises were eventually resolved with massive stimulus measures — a prospect that looks more distant in 2024 as President Xi Jinping seeks to overhaul the economy.
Baowu did not elaborate on the causes of the current economic downturn, focusing on how employees should respond: by preserving cash and minimizing risks.
“Finance departments at all levels should pay more attention to the security of the company’s financing,” Baowu said in a statement, citing the need to strengthen controls, including over late payments and the detection of counterfeit transactions. “In the process of overcoming a long and harsh winter, cash is more important than profits.”
Source: Bloomberg