Iron, iron, iron. Ore should we say steel, steel, steel? Whichever you prefer, it was a rough week for China’s metals markets wherever one looked, dear readers. But don’t just take our word for it.
Just ask employees from one of Hebei’s countless steel mills how things are going—or maybe don’t, given that its governor just announced that the province will be shuttering 60% of them by 2020 at a cost of RMB180 billion, leaving around a million workers unemployed in the process and banning new mills until production capacity has fallen far enough.
Of course it’s hard to blame said governor for trying to do something, anything in the face of China’s enduring industrial overcapacity. Factory gate prices in February fell another 4.9% as overproduction in heavy industry continued to plague manufacturers on the mainland. And we’d suggest those looking offshore for a pick-me-up had best stop straining their eyes, given that exports last month fell a gob-smacking 25% compared to the year before—the worst dive since the nadir of China’s post-financial crisis slump in 2009.
Nor were China’s consumers much help in soaking up the steel-reinforced spillover, as auto sales fell 1.5% from a year earlier in February, with growth for the year to date coming in 2.7% below the level forecast by China’s auto manufacturing association.
Why, practically the only bright spot for iron ore this week was, paradoxically, a flower show in Tangshan. It seems the local government will require area steel mills to close from late April to October to ensure blue skies for an upcoming international horticulture exhibition, prompting an increase in production ahead of the hiatus that pushed iron ore prices up by 20% in a single week.
That kind of boost can only last so long before prices sink back down to their depressing status quo, though. Hence Beijing this week proposed an RMB100 billion fund to retain workers who get laid off in the course of industry cuts nationwide. Of course, the plan also requires local governments whose revenues are set to be hardest hit by said slashing of industrial overcapacity to foot some of the bill.
Little wonder then that the more industrial provinces suggested the central government shoulder more of the burden for the proposed restructuring fund. But whoever ends up paying, Chinese steel smelters are sure to keep feeling the heat.