Tag Archives: Baoshan Steel

China’s Slow Growth Finds Its Trough

How much stock should we put in the talking up of the economy by leading Chinese officials? Given that they have little control over the biggest short-term driver of the economy, external demand, that they are running out of time for monetary policy, such as it is, to work before the imminent leadership transition, and that reverting to the old standby of infrastructure spending risks undoing both the hard-won cooling of the property market and the long-term rebalancing of the economy, the answer is probably not much.

Corporate profit reports probably tell a truer story. It is not a comforting tale. Take these two bellwethers:

  • Cosco, operator of the world’s largest bulk cargo fleet, this week posted a loss for the six consecutive quarter and said the outlook for its industry remained bleak as a result of a gut in shipping capacity; i.e. more carrying space of inbound cargoes of raw materials and outbound ones of exports than there is demand for; and
  • Baoshan Iron and Steel, the country’s largest listed steelmaker, expects the third quarter to be “the most difficult” of the year, even though it expects to stay in the black just about.

The economy might be getting close to the end of its slowdown in growth, but it looks as if it is going to be bumping along the bottom for some months yet, regardless of the political imperatives to hand over an economy delivering the sorts of growth rates that justify the Party’s legitimacy to rule. But stimulate now with infrastructure spending and that  risks setting back the long-term changes to the economy that the Party will need to pull off if that legitimacy to rule is to outlive the next generation of leaders.

Leave a comment

Filed under Economy

Baoshan Steel Will Cut Prices, Again, As Demand Slumps

When Baoshan Iron and Steel, the country’s biggest steelmaker, says it is to cut prices by up to 20%, it is a clear sign that the economy is slowing and an industry is in trouble. And even the more so as it is Baoshan’s  third price cut in three months.

Nor is Baoshan alone in price cuts as steelmakers face rising raw material and energy costs, slowing demand and growing supply from new plant. Prices hit a peak in June having risen 23% from the start of the year, but prices have since tumbled back even more, some 30%-40% as carmakers and builders have slashed orders.

Crude steel output, at 39.6 million tonnes was down 9% in September from a year earlier and 7% from the previous month. Prices for some steel products have fallen below the cost of production for all but the most efficient mills.

Last month, four big Chinese steel makers, including Shougang Group, following the lead of Baoshan and ArcelorMittal, agreed to cut production by up to 20%, perhaps until the year-end, to boost prices. The industry is highly fragmented and authorities have been on a push to close down antiquated, polluting and small mills. The slump in prices and demand will only force that process. China’s steelmakers are heading down the familiar path of consolidation.

1 Comment

Filed under Economy