'Ice Age' Arrives for Global Steel, Says Top China Mill

'Ice Age' Arrives for Global Steel, Says Top China Mill 

The crisis engulfing the global steel industry is so severe that one of China's top producers has warned a new Ice Age has set in as mills confront overcapacity and rising competition that threaten their survival.
"In 2015, China experienced a slowdown in economic growth and excess steel capacity, which caused the domestic and overseas steel industry to enter into an 'Ice Age'," Angang Steel said after posting a net loss of 4.59 billion yuan for last year. There are severe challenges, fierce competition, and difficult survival conditions, it said.

Steel demand in China is shrinking for the first time in a generation as growth slows and policymakers seek to steer the economy toward consumption. Faced with declining sales at home, mills in the top producer - which accounts for half of global supply - have shipped record volumes overseas, heightening competition from Europe to the US Tata Steel in India said this week it's planning to sell off its loss-making UK plants, prompting Prime Minister David Cameron to call crisis talks on Thursday.
The steel industry is set for a "severe winter", Angang said, describing the market that it and others faced as complex. The output of steel by the country's fourth-biggest producer contracted 4.4 percent last year, and the company is seeking to reduce costs and boost efficiency, it said.

Benchmark steel prices sank 31 percent in China last year, pummelling mills' margins and spurring the government to step up efforts to force the industry to shut overcapacity and shift workers to other jobs. While the reinforcement bar has rebounded since November, Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group, forecasts the rally may not last.
"The short-term rally we've seen in steel prices will give way to the longer-term dynamic of weaker steel consumption in China," Hynes said by phone on Thursday. "I suppose the positive thing is that maybe the restructuring we're seeing in the steel industry will speed up the rationalization of the market."

Ore with 62 percent content in Qingdao fell 0.8 percent to $US53.75 a dry ton on Wednesday, dropping for a seventh day, according to Metal Bulletin. Prices, which posted a record one-day gain on March 7, have still posted the biggest quarterly advance since December 2012.

Other results from China this week showed the extent of the downturn. Baoshan Iron & Steel Co, China's second-biggest producer, posted an 83 percent slide in net income last year, and Chongqing Iron & Steel Co. swung to a net loss of 5.99 billion yuan from a profit a year earlier.

As China's steel demand dropped and prices sank in 2015, mills in the country churned out less for the first time since 1981. Crude steel production fell 2.3 percent to 804 million tons last year, official data show. Output may drop to about 783 million tons this year, Li Xinchuang, deputy secretary-general of the China Iron & Steel Association, has forecast.

The nation's leading industry group representing mills including Hebei Iron & Steel Group has reported wider losses as demand contracts faster than they're able to cut output. Medium- and large-sized mills that are members swung to a loss of 64.5 billion yuan last year, the group has said.

"On the whole, the steel sector is still a sunset industry," said Zhao Chaoyue, an analyst at China Merchants Futures Co. in Shenzhen, adding that it was appropriate to use the Ice Age term as the entire industry lost money last year.