I'll just leave this here...............
China has created a steel monster and now must tame it: Andy Home
PRICES DOWN, PROFITS DOWN, DEBTS UP
Not only is China producing far too much of the stuff relative to what it needs, but all those years of rapid expansion have left a legacy of huge excess capacity.
National steel-making capacity is thought to be around 1.25 billion tonnes, of which at least 300 million tonnes or so are surplus to requirements, even allowing for that export stream.
Steel prices in China have been heading south for a long, long time under the weight of all that surplus, both active and inactive.
In 2009, when the Shanghai Futures Exchange first launched its steel rebar contract <0#SRB:>, the price recorded a high of 6,903 yuan per tonne. Today the construction-grade steel is trading under 1,800 yuan, having fallen in almost a straight line over the last couple of years.
Hardly anyone is making money. The country's own steel body, the China Iron and Steel Association, said the largest producers had combined losses of 28.12 billion yuan ($4.43 billion) in the first nine months of 2015.
And evidence of that financial strain is accumulating: witness the scare about state-owned Sinosteel extending the redemption date for its bonds.
What is happening in the smaller-capacity part of the sector is anyone's guess, including CISA, but it is probably uglier still.
CISA has been vociferous in calling for production cuts and capacity closures.
The government itself, as Xi told UK reporters, has been trimming what it calls outdated capacity but up to now it has been using a scalpel when it should have been wielding an ax.
But then again, no one wants to see their local steel mill close with all the resulting collateral damage in terms of jobs, taxation revenues and associated industries.
Chinese local authorities are no different from those in Britain in this respect.
But the added complication is the opaque debt structure underpinning the Chinese steel industry. Closing a loss-making mill means someone has to take the debt write-off, whether it be the local bank, the local government or a combination of the two in the form of an off-balance-sheet financing vehicle.
And that's China's Catch 22.
The longer it defers closing steel capacity, the weaker the market, both in China and everywhere else, and the bigger the debt mountain.
But forcing closures, particularly among state-owned producers, comes with the risk of unpredictable debt events and social backlash.
China has created a steel monster, which is now devouring the rest of the world. But the real worry is what it might do to China itself.
http://www.reuters.com/article/us-china-steel-ahome-idUSKCN0SN2H420151029
