Baowu Steel warns of a serious crisis in the Chinese steel industry

China’s steel industry is facing a crisis more serious than the recessions of 2008 and 2015. The world’s largest steelmaker, China Baowu Steel Group, warned of this, Bloomberg reports.

The crisis is likely to be longer and more severe than the steel sector expected, said Hu Wangming, chairman of Baowu Steel Group, at the company’s semi-annual meeting. The group produces about 7% of the world’s steel, and this message from it is likely to cause concern among competitors in Asia, Europe and North America who are trying to cope with the new wave of Chinese exports.

Baowu Steel will focus on minimizing risks. The company recommends that financial departments at all levels pay more attention to the security of financing and strengthening control, including overdue payments and the detection of fictitious transactions. It is noted that in a crisis, cash is more important than profit.

The agency notes that the Chinese steel market is showing numerous negative signals. The downturn in the real estate market and the decline in factory activity have destroyed domestic demand this year, steel prices have fallen to multi-year lows, and factories have suffered losses.

China’s steel industry suffered a devastating decline during the global financial crisis of 2008-2009 and again in 2015-2016. In both cases, the situation was resolved through large-scale stimulus measures by the authorities. However, a similar prospect looks less realistic this year, as the Chinese authorities try to reform the economy.

Chinese steel mills are cutting production amid falling prices for steel products in the domestic market. Iron ore reserves in the country are growing, with prices for this raw material falling to $96.85 per tonne on August 14. Meanwhile, steel exports are approaching 100 million tons for the year, the highest level since 2016.

The situation in the Chinese steel market has global implications as iron ore prices are weakening, and the country is increasing steel exports, exacerbating global trade disputes.