Weak demand will constrain production; The Chinese Steel Industry is in crisis!

Alloy stocks rise well above normal levels

China's steelmakers said that their profit margins fell due to weak demand, and there was a crisis in the industry. He emphasized the seriousness of the situation as the steel industry is alarming.

The harshest warning ever came from Hunan Valin Iron & Steel Group, which met this week to discuss the industry's rapid decline and measures it must take to ensure the company's survival, including halting unprofitable production. 

The southern China-based plant said it expects the crisis to last five years, citing industry experts.

Other mills in the northwest and southwest of the country have pledged to cut production as they await infrastructure spending to stimulate steel demand. Inventories rose well beyond seasonal norms after pressures on the Chinese real estate sector and a 'Zero Covid' policy curbed construction activity. The steel industry's purchasing managers' index for June recorded its worst data in a decade last week.

Although stocks finally pulled down at the end of the month as China pulled back some of its toughest virus restrictions, it's still 23% higher than a year ago, according to the latest survey from the China Iron and Steel Association. President Xi Jinping has called for a full-blown pressure on infrastructure to save the economy, but this is unlikely to fully offset demand from the real estate sector. 

Cutting production to at least last year's levels would be appropriate for both industry and government, as reduced supply would support prices and help Beijing's mission to limit carbon emissions from the industry.