Bloomberg Intelligence reports that China’s steel industry is bracing itself for a wave bankruptcy as the country continues to experience economic turmoil.
The steel crisis has been viewed as a turning point that could lead to the consolidation of this vast sector.
Bloomberg Intelligence senior analyst Michelle Leung says that a staggering three quarters of Chinese steelmakers suffered financial losses during the first half of this year. This raises the possibility of insolvency among many.
Leung says that companies like Xinjiang Ba Yi Iron & Steel Co. and Gansu Jiu Steel Group are particularly vulnerable, and could become prime targets for acquisitions.
These companies did not respond to calls seeking their comments.
China consolidates its steel industry
Beijing may be able to achieve its goal of consolidating the steel industry by taking advantage of the current climate.
Bloomberg Intelligence reports that the government wants the top five producers of steel to hold 40% of the market in 2025. The top 10 players will account for 60%.
China’s market concentration is expected to be behind that of other industry giants such as South Korea and Japan, even though this goal is considered achievable.
China’s steel sector is being reshaped due to a prolonged downturn in the property market and slow economic growth.
The chief of China Baowu Steel Group Corp. (the nation’s biggest steel producer) has warned that this crisis could be worse than the ones experienced in 2008 or 2015.
As domestic demand has plummeted, Chinese mills are now exporting their steel. This has led to international trade disputes as other countries claim that the steel is sold below cost.
China’s exports of steel are expected to stay steady until 2026, despite growing restrictions by trading partners.
Bloomberg Intelligence reports that the global trade barriers and overall decrease in production will ultimately weigh on exports.
Housing reforms are key to China’s economic growth
China’s efforts in rescuing its struggling housing market is seen by many as the best way to achieve 5% economic growth. This goal is achievable if the housing reform package of the government is fully implemented.
However, the country’s housing crisis is expected to continue for many more years. This continues to exert downward pressure to the economy.
According to a report by the Securities Daily, analysts expect that China’s bank will introduce another round of rate cuts on mortgages later this year. They believe these measures will boost consumption.
Citigroup Inc. has been unable to expand into China due to US regulations.
Sources claim that the Federal Reserve has penalized the bank for data management and control issues. This is complicating their plans in the area.
As new information becomes available, this post China’s Steel Industry faces bankruptcy surge amid Economic Downturn may be updated.
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