Steel capacity in China recognized by the country’s Ministry of Industry and Information Technology has already reached 1.3 billion tonnes per year, but steel demand is expected to only be around 1 billion tonnes this year, Han said during an address at the Tianjin International Tube Industry Expo in Tianjin last week.
The steel oversupply is likely to be sustained in the future, because demand will continue to shrink, he said. Steel demand decreased by around 30 million tonnes in 2021 from 2020, and will fall by a further 30 million tonnes this year. Eventually, demand will be reduced to around 900 million tonnes, mainly due to declines in the property sector, he said.
Persistent oversupply and declining demand could result in steel mills losing money becoming normal. The industry has turned from “making money by doing nothing” in the past few years to “losing money is the normal,” Han said jokingly.
In this new era, China’s steel market is also overly financialized, the vice president said.
“Our rebar futures is the most-traded [financial] product in the world,” he said, “even those whose major business is in the stocks markets are using rebar futures for hedging.”
The oversupplied and overly financialized steel market will lead to steel prices fluctuating fiercely, Han noted
Fastmarkets’ assessment for steel reinforcing bar (rebar) domestic, ex-whs Northern China was 4,525 yuan ($655) per tonne at the midpoint in January this year, climbed to 5,090 yuan per tonne in April, and then fell to 3,720 yuan per tonne in July.
You have to reduce output, especially when you are losing money
In this new era, the top priority for the steelmakers is to “survive,” the vice president said.
Mills should pay attention to the supply-demand balance and control the pace of their production accordingly.
In accordance with the estimated 1 billion tonnes of steel demand, the daily average crude steel output in China should be controlled to be around 2.75 million tonnes, but over January-July, the output already reached 2.87 million tonnes per day, which means that in the next few months, “we have to control the output at below 2.75 million tonnes,” Han said.
“You have to reduce output, especially when you are losing money,” Han said, noting that some Chinese mills won’t scale down production until their losses exceed over 500 yuan per tonne.
“If you continue producing when losing money, chances are that you may lose up to over 1,000 yuan per tonne in one month [during the drastic price falls amid an oversupply] that may cost you one year to make up in the future,” he said.
Innovating the products and services, learning to use financial tools such as futures and options, and carefully choosing your business partners are also ways that Han suggested for mills to be able to survive in the increasingly severe market conditions.
Han said that the Youfa Group should maintain “order” in its pipe business. Every producer arranges production according to demand, and importantly does not sell products when losing money.
“If you sell products losing money, the market will be in disorder, and a stampede may emerge. That will be the real disaster,” Han said.
If you sell products losing money, the market will be in disorder, and a stampede may emerge. That will be the real disaster
