The global steel industry is facing a 'winter' due to an oversupply and sluggish demand.

• The cost of steel rebar in China has decreased by more than 20% this year, according to Wind's financial data, which is currently priced at 3,208 Chinese yuan ($450) per ton.
• BMI's head of commodities analysis, Sarbin Chowdhury, stated that Chinese demand has been a significant disappointment for metals industry-wide.
• The price of iron ore, a crucial component for steel production, has dropped by more than 28% this year, as per FactSet data.

The steel industry in China is facing challenges due to the sluggish property market and inability to absorb excess capacity, according to industry watchers.

BMI's head of commodities analysis, Sarbin Chowdhury, stated that Chinese demand has been a significant disappointment for various metals, particularly steel and iron ore.

The weak property sector in China is causing the property sector downturn, which is expected to last several years, and this negatively impacts industrial metals used in infrastructure.

Over a billion tons of steel are produced by China annually, which makes it the world's largest steel producer, accounting for more than half of the global output.

The world's largest consumer of steel and iron ore is experiencing a decline in prices due to an oversupply of steel and weak demand from domestic markets.

The cost of steel rebar in China has decreased by more than 20% year to date, reaching 3,208 Chinese yuan ($450) per ton, according to Wind's financial information. Meanwhile, the price of iron ore, a crucial component for steel production, has fallen by over 28% this year, as per FactSet data.

Steel industry's 'winter'

Baowu Steel's chairman, Hu Wangming, stated that the steel industry is currently experiencing a "winter" and is undergoing a long-term adjustment period.

The Chinese steel industry is facing a dilemma as steel makers' profits are being squeezed by weak demand, according to Matty Zhao, Head of Asia Pacific Basic Materials, Oil and Gas Research at Bank of America. The muted demand is expected to persist until 2025 due to a "very weak" Chinese property market, she said in an interview with CNBC.

The Third Plenum gathering did not announce any specific measures to revive China's struggling property market.

Citi predicts that excavator sales in China will decline by 8% annually in fiscal year 2024, indicating a potential slowdown in construction activity and metals demand.

Vivek Dhar, a Commonwealth Bank of Australia analyst, stated that steel mill margins in China may decline to their lowest point this year, which could further decrease iron ore prices.

Over the past 12 months, China steel makers have incurred losses, prompting them to seek better prices in export markets, according to BofA's Zhao.

'Unsustainable' market conditions

China is facing dumping charges from several countries as its producers try to increase exports due to a slowdown in the domestic market.

Anti-dumping duties on hot-rolled steel coils from China have been announced by Thailand, while India imposed such duties on certain Chinese steel for five years. Additionally, Vietnam's Ministry of Industry and Trade is currently investigating some types of hot rolled coils from China and India.

The rest of the world's steel production prospects have been significantly influenced by Chinese exports, according to Citi's analysts.

If the rate of net steel exports from China continues at 57.1 million tons per month, there will be a 17% increase in Chinese steel exports in 2024 compared to the previous year, according to Citi's team. They also noted that the increase in steel exports in 2023 reduced the global steel production capacity.

Due to the inability to compete with Chinese steel, Chile's largest steel mill, Compañía Siderúrgica Huachipato, has announced that it will indefinitely shut down its steel operations.

ArcelorMittal, the world's second-largest steel producer, has stated that the steel market conditions are "unsustainable" due to China's excess production.

The Luxembourg-based company stated in its second quarter results that China's excess production is causing very low domestic steel spreads and aggressive exports.

Zhao from BofA stated that China's steel-dumping could result in an oversupply of steel in its export markets, negatively impacting the stock prices of domestic steel-makers.

In 2023, five Southeast Asian countries, including Vietnam, Thailand, the Philippines, Indonesia, and Malaysia, accounted for 26% of China's steel exports, while South Korea followed with 9%, according to BofA's statistics.