China steel mills gearing up for brighter 2022

The Worst Year for Chinese Steel Mills Since 2016 Gives Way to Hope

The steel mills in China are gearing up for a brighter year as prices of the construction material recover on optimism that an economic rebound and measures to revive the property industry will boost demand.

In the past three months, steel futures in Shanghai have surged by 26% on the expectation that consumption will expand after the government scrapped Covid-Zero rules, increasing optimism about the outlook for industry profits.

After a difficult year for earnings in 2022, the world's largest steel industry is getting some welcome relief. China is focused on ramping up its mammoth economy and President Xi Jinping is calling for increased efforts to boost consumption and expand investment this week. There is still uncertainty as to how effective the support measures will be.

China s growth recovery is still patchy despite a better outlook despite a better outlook.

Atilla Widnell, managing director at Navigate Commodities in Singapore said that there is little doubt that China's reopening will be a boon for domestic steel consumption in 2023 compared to the disappointing levels last year.

The past year was one to forget for Chinese mills. The industry has had its worst year since 2016 as a result of preliminary full-year earnings from 17 of the top producers, according to data compiled by Bloomberg. Half of the them have signaled net losses, with one of the biggest, Angang Steel, reporting a 98% slump in net income from a year earlier.

The extent of the reversal of mills fortunes will depend on how efficiently government support feeds through to property developers and boosts consumer confidence. Some analysts are cautious about the benefits of the measures.

Li Liangxu, a fund manager at Guangdong Ronghao Asset Management, said economic support policies will more or less help the industry. He said that he is cautious about whether we will see a great uptrend, but I am cautious about whether we will see a great uptrend. He added that it is not clear how much the property industry will recover this year.

Widnell, from Navigate Commodities, said that production costs could eat into profitability. Since the beginning of November, the prices of iron ore, the steel-making raw material, have gone up around 40% in Dalian and around 60% in Singapore.