Shanghai Steel Futures Slump to Record Low as Demand FaltersBloomberg News
Industrial output figures show weak economic growth persisting
Steel mills fail to pare overcapacity amid supply glut
Steel futures in Shanghai slumped to a record low as demand falters due to slowing economic growth in the world’s largest producer.
Steel reinforcement-bar for May delivery on the Shanghai Futures Exchange fell by 0.7 percent to close at 1,765 yuan ($277) a metric ton Thursday, the lowest close on the most-active contract since trading began in 2009.
Steel rebar is used in construction to reinforce concrete. Prices have come under pressure along with other metals as China’s industrial production growth ebbs, contributing to the weakest economic growth in a generation. Steel prices are particularly vulnerable to such conditions because output, while beginning to decline, is still at elevated levels.
The fall in steel prices follows October industrial output data on Wednesday, which showed weaker-than-forecast growth in the world’s biggest consumer of steel. Factory output rose 5.6 percent from a year earlier, matching the weakest readings since 2008, while fixed-asset investment increased at the slowest pace since 2000.
“Various bearish economic indicators have shown that demand continued to shrink while the supply reduction isn’t enough to stem a glut,” Xu Ke, an analyst at Huatai Futures Co., said in a report Thursday.
China’s crude steel output was 66.12 million tons in October, 3.1 percent lower than last year but around the same levels as September, the National Bureau of Statistics said Wednesday.
China has failed to pare overcapacity because the bigger steel companies haven’t shut plants following acquisitions while smaller mills have continued to grow, according to a report Thursday from Bloomberg Intelligence analyst Yi Zhu. China’s top-10 producers’ share of output has dropped to 37% in 2014 from 49% in 2010, according to the report.
“This fragmentation has prolonged margin-narrowing price wars, stoked materials costs and fueled environmental concerns,” Yi said. Steel making profitability in China has collapsed this year to the lowest on record, according to an index compiled by Bloomberg Intelligence.
Baoshan Iron & Steel Co., China’s second-largest mill by output, swung to a loss of 920.5 million yuan in the third quarter and warned that full-year profit could be wiped out. Its stock fell 2.2 percent Thursday for a loss of 26 percent over the past year.
Other producers have fared worse. Angang Steel Co., which also posted a third quarter loss, has fallen 43 percent over the period, while Sinosteel Co., a state-owned steel trader, last month failed to pay interest on bonds maturing in 2017.
Analysts say more defaults could be due in the steel sector and other heavy industries such as shipbuilding and coal mining that are dependent on industrial growth as opposed to increased consumer spending.
— With assistance by Feiwen Rong