2 December 2015

China does not plan to reduce steel production

The world market has become quiet in the near future can not see. China in the near future does not intend to reduce the production of steel. This conclusion was made by experts of the financial group Macquarie. The collected data on the metallurgical sector of the PRC Australian experts voiced in the monthly review. In the same place, the fact of reducing excess capacity was reflected. At the same time, decommissioning will be very slow. And this despite the critical state of the industry ...

Representatives of Macquarie are convinced that the participants in the steel market of China have reduced expectations to a minimum. In any case, in the last four years this is the lowest mark. That's how much the Australian company keeps statistics. Experts conducted a survey among traders, suppliers and manufacturers. By the results of approximately 10% of respondents hope for a bright future in the near future. Representatives of CISA talk about losses, which domestic producers can not avoid. On average, losses reach 31.3 USD per ton of produced steel.

A logical question arises: what should the volumes of smelting be maintained at the same level? And only single production is taken out of service? Experts Macquarie talk about a number of factors affecting the continuing operations of unprofitable production. The authorities do not plan to stop unprofitable enterprises. For in this situation, you will be responsible for tax cuts and job cuts. Producers fear for the loss of market share. The competition is already tough enough. Stopping the same capacity and the subsequent launch requires a lot of investment. To continue the work of production is much cheaper. Even if the value of the goods falls below a reasonable limit. Banks make a contribution to the situation. The decrease in the volumes issued threatens to convert the issued loans into distressed assets. Over time, the voltage builds up. Investing unprofitable companies increases debt.

The result of the assessment of these factors was the forecast Macquarie for the next period. The surplus supply of Chinese steel in the world markets - and on its own - will continue. Accordingly, the rental price will continue to decrease. Gradually shut down capacities will become larger. Iron ore will continue to become cheaper. But all enterprises will maximize the available capacity until the very last moment.

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