China's steel industry is comprised of large to small scale producers, the bone of contention for some who say production is being encouraged regardless of the price of steel which by its own account remains under strain from the oversupply being exported onto the global market.
Although still rumours, if the information turns out to be true then it fully expresses the Chinese government's intentions of overhauling the steel industry to compete in a global market, an outcome that may give certainty to millions of Chinese steel workers but unsettle the dominance once had by major steel makers across the world who spent billions in capital expansion projects with the foresight of supplying the deficit of Chinese steel demand.
With this in mind it's pertinent to note that these producers have tried to fight off China's inefficient producers with low cost margins from some of the most generous ore bodies in the world.
However a depleting price margin has meant the the cost needed to recover the capital spent in reaching this competitive advantage continues to escalate as the time required to pay it off extends further away from expectations with every decline in price.
If China decides to go through with a consolidation of its steel industry then it'll continue to strangle the price of iron ore leading to more of the same...disequilibrium. Most major listed steel producers have barely survived the past three years of turmoil in the commodities markets that have brought on a vast amount of cash outflows from their balance sheets. China's restructuring will only serve to put more pressure on an industry already under strain.
It's believed a sweeping overhaul of China's steel industry is being considered https://t.co/cILnKPxlC1 pic.twitter.com/ku1cO2gxiP— Bloomberg (@business) August 1, 2016
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