Dry CargoGreater China

Trouble at the mill: China’s declining steel demand has cape owners on edge

China’s plummeting steel demand and falling prices for the metal are putting cape owners on edge.
China’s steel market, the world’s largest, has experienced a sharp sell-off over the last 10 days and steelmakers are increasingly looking to idle steel plants as their margins take a beating with steel prices crashing to 2020 levels.

China’s steel output has been wildly overshooting local construction activity, something that is only now registering in prices for the metal.

Dalian iron ore prices fell again today, and have now registered their steepest weekly fall since mid-February.

In China’s steel production hub, Tangshan city, 56 of the 126 blast furnaces were shut down for maintenance, according to Sinosteel, as mills struggle to cope with slumping margins amid weak steel demand and high inventories. However, it is important to note this period of the year in China does tend to see a greater period of blast furnace closures thanks to the weather.

Listed liner companies’ share prices are taking a battering

Mysteel Research & Consulting expects China’s steel prices to trend down as it enters a weak demand season amid high temperatures and heavy rainfalls. Most steel mills have planned maintenance in late June and early July.

“In the short term, we do not expect the demand from the manufacturing sector and the property market will pick up when the automobile sector is recovering,” a new report from Mysteel Research asserts.

Extreme lockdowns have hindered economic activity throughout the spring in China. Data from S&P Global Commodity Insights, for instance, shows China’s consumption of crude steel fell 14% in May compared with last year.

Consequently, inventory levels are 12% higher compared with last year according to data from CRU Group and may take through to August to fall to the median levels of the past five years.

China’s steel demand has dictated capesize riches throughout this century. However, this is changing.

Unusually, steel demand in China during the next two years is expected to grow at less than a quarter of the rate for the rest of the world, a recent dry bulk report from BIMCO predicted.

The slump in China’s housing market has profound implications for future cape earnings.

An official index that tracks apartment and house sales has posted year-on-year declines for 11 months straight—a record since China created a private property market in the 1990s.

The malaise in real estate is the worst property downturn in China on record, according to Nomura Holdings.

In May, sales in major cities declined over 40% from the previous May as lockdowns closed businesses and joblessness spiked.

Norwegian broker Fearnleys in its most recent weekly report described the cape markets as “shaking” as fears of global recession grow, and steel and iron prices drop.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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