China's steel industry is sounding the alarm due to crisis conditions

President Xi Jinping has called for massive infrastructure development to save the economy, but this is unlikely to fully offset the loss of demand from the real estate sector.
China's steel mills are sounding the alarm about the industry's downturn as margins tumble on weak demand.

The sharpest warning came from Hunan Valin Iron & Steel Group, which met this week to discuss the sector's rapid downturn and the measures that need to be taken to ensure the company's survival, including shutting down unprofitable production. Citing industry experts, a plant in southern China said it expects the crisis to last five years.

Iron ore prices fell again on Friday due to gloomy demand forecasts in China. The benchmark 62 percent Fe fines imported into northern China fell 0.5 percent to $113.68 a tonne.

Other mills in both the northwest and southwest of the country have pledged to cut output as they expect infrastructure spending to revive demand for steel. Inventories rose well above seasonal levels after China cracked down on its real estate sector and its Covid Zero policy curtailed construction activity. The Purchasing Managers' Index for the steel industry for June recorded its worst reading in a decade last week.

"The risk for China is that current negative sentiment outweighs expectations that Beijing's stimulus measures will boost the economy in the second half of the year," wrote Reuters columnist Clyde Russell.

According to Chinese industry data provider Mysteel, nearly 90% of Chinese steelmakers suffered losses due to weak sales and low prices.

While inventories finally dwindled at the end of the month as China lifted some of its toughest virus restrictions, they are still 23% higher than a year ago, according to the latest survey from the China Iron and Steel Industry Association.

A cut in production, at least from last year's level, is likely to please both industry and the government, as supply cuts will support prices and also help Beijing curb carbon emissions from a heavily polluting sector.