Chinese Steel Mills Bankrupt as Prices Plunge

Preface

The Chinese steel industry has made significant contributions to the country's infrastructure and economic growth over the past decades. However, it is now facing an unprecedented crisis due to the sharp decline in steel prices, leading to the bankruptcy and production halt of many steel mills. This situation signifies substantial economic losses and sends a crucial signal: the imbalance in industrial structure, intensifying global competition, and the downturn in related industries are all forcing the steel industry towards a critical moment of transformation and change. What exactly is happening?

I. The Golden Age and Early Signs of Decline in the Steel Industry

Back in the day, when the People's Republic of China was newly established, the nation's construction was in full swing. Steel, as the "ballast stone" for infrastructure construction, was highly sought after. During the "Great Leap Forward" in 1958, the entire country rolled up its sleeves to smelt steel, creating a scene of fervent activity. Steel mills sprouted up like mushrooms after rain, and as a result, steel production across the country skyrocketed, leading to a leap in the development of national infrastructure.

The demand for steel grew as if it had "ridden a rocket," directly propelling large-scale urbanization and infrastructure construction. At that time, if a household did not have some steel on hand, they would be embarrassed to claim they were in the infrastructure business.

Data shows that from just a few hundred thousand tons in the early years after the founding of the People's Republic of China to over a hundred million tons after 2000, steel production steadily climbed, a rise that could be described as "hardcore." It's important to note that steel is essential for constructing high-rise buildings, highways, and even bridges and tunnels. Infrastructure construction simply cannot do without it. In summary, at that time, China's steel industry was undoubtedly in a "spotlight moment" on the global stage.

However, "fortunes change," and as we entered the 21st century, things began to look a bit off. The once "big brother of steel" suddenly realized that the market seemed to have become too "competitive." Although the global industrialization process brought significant demand for steel, it also created a major problem: overcapacity.

To put it simply, steel mills worked hard with all their might, only to find out that too much steel was produced, and the market simply could not absorb it. Data indicates that in 2020, the utilization rate of steel capacity in China was only about 75%, with the remaining 25% either "lying flat" in warehouses gathering dust or simply unsold. The situation of oversupply became increasingly severe, and steel prices gradually slid from their peak, with many steel mills starting to feel the "immense pressure."Of course, things are not that simple. The external environment is no longer friendly, and the global steel market can be described as a "battle of the gods," with countries joining a price war. Everyone is trying to seize market share by lowering steel prices, which leads to the global steel market falling into a "price quagmire," exacerbating the problem of supply and demand imbalance.

At the same time, the downturn in the real estate and infrastructure construction industries has also made things worse for the steel industry. The real estate market used to be a "good brother" to steel, but since 2021, housing prices have entered a "frozen period." The number of new buildings in major cities has decreased, and with fewer houses being built, there is naturally less demand for steel.

What's more critical is that the prices of raw materials such as iron ore are still strong, making life even more difficult for steel companies. Costs remain high, and sales are not improving, making it harder for steel mills to survive.

The tough times for steel mills are not over yet. Next, they will face a dilemma known as the "prisoner's dilemma": continuing production means losses, while stopping production could lead to being eliminated from the market.

II. The Dilemmas and Operational Challenges Faced by Steel Mills

The current situation for steel mills is like an endless "war of attrition." The price of steel billets has continued to fall, even reaching a "freezing point." However, the operating costs of steel mills have not shown any mercy and remain high.

Taking Tangshan as an example, the ex-factory price of steel billets is 3,120 yuan per ton, which sounds quite "people-friendly," right? But the problem is that the cost of steelmaking is there, with a tax-inclusive cost of 3,335 yuan per ton. A simple calculation shows a loss of 215 yuan per ton.

This is just the bill for raw materials and taxes. Don't forget about the "invisible" costs such as wages and equipment maintenance. When added together, the losses are so severe that they could turn a steel mill owner's hair white.

This "deteriorating loss war" has plunged steel mills into a "prisoner's dilemma." If they operate, they lose money, and it hurts; if they don't produce, workers have no work, and the enterprise comes to a standstill.

What's even more challenging is that the steel produced has no buyers and piles up into inventory. So now the problem becomes complicated: if they don't continue production, the steel mill faces shutdown and even bankruptcy; if they continue production, they should prepare for even greater losses.The situation is not just a struggle for Chinese steel mills; global steel companies are also in deep trouble, as the Chilean steel giant has not been able to escape the misfortune either.

As early as this year, one of the largest steel companies in Chile has announced a permanent shutdown, and the situation has spread across the global steel industry, like an "economic flu" sweeping through various countries.

Traditional steel powerhouses such as Germany and the United States have also not been spared, feeling the chill of the crisis. Steel, once sought after by countries, is now like an "outdated internet celebrity," suddenly ignored. This global steel dilemma has already plunged many steel giants into bankruptcy, and the market has started a "steel mill bankruptcy competition," with everyone competing to see who can't "hold on" first.

The next step is to deal with the chain reactions caused by the plummeting steel prices. Issues such as worker unemployment, intensified market competition, and impacts on other industries are all waiting to be addressed.

III. Chain Reactions Caused by the Plunge in Steel Prices

The plummeting steel prices bring not only the "heartbreak" of the steel mills themselves but also a "disaster blockbuster" that spreads throughout the entire industry. The first to be affected is the employment issue. What happens to the workers when the steel mills go bankrupt? This is not just a matter of a few positions; it's about the "livelihoods" of tens of thousands of workers that are precariously spinning.

Just in the first few months of this year, more than 30 steel mills in the country announced bankruptcy and production suspension, which means that over tens of millions of tons of production capacity were directly "wiped out." Workers have gone from "eating steel meals" to "having no food to eat," and these positions are also difficult to transfer to other industries.

What's more troublesome is that the employment issue in the steel industry is not limited to domestic concerns; it's a global issue. The successive bankruptcies of steel companies in countries like Chile, Germany, and the United States have led to a further intensification of the global employment crisis.

After steel mill workers are laid off from their construction sites, they have nowhere to go and can only worry about the depressed market. Economists predict that the employment crisis in the steel industry will have a significant impact on the country's overall economy because these unemployed workers not only lose their sources of income but also lower the level of consumption. The steel industry, as the "mainstay" of heavy industry, when this pillar collapses, it not only hits the workers but may also cause the country's economy to "collapse completely."

The plummeting steel prices not only lead to worker unemployment but also directly affect other industries, especially construction and manufacturing. Since steel is an indispensable material in infrastructure construction, its price drop seems to bring a "cost-saving benefit" to builders, but in reality, it has a significant impact on the entire market.The plummeting steel prices have led to a significant delay or even suspension of numerous construction projects, as no one is willing to purchase large quantities of steel when prices continue to plummet, with everyone waiting for even lower prices.

In addition, the sluggish real estate market, reduced demand, and the impact on the manufacturing industry, especially those industries that rely on steel, such as shipbuilding and automobile manufacturing, are all shivering in this "steel cold wave."

Faced with the crisis, some choose to give up, while others seek the dawn in the darkness. Can the steel industry find a new way out, rejuvenating itself through technological innovation and market transformation?

IV. Breakthroughs and New Opportunities in the Steel Industry

The future of the steel industry is not as bleak as it seems. Although the current difficulties make people feel "bald," the opportunities for the future have long been hidden. First and foremost, technological innovation is the key card to turn the situation around.

For the steel industry to make a comeback, it must "roll" out a new sky in technology, such as low-cost, high-efficiency new steel production technology, which is a breakthrough. If production costs can be minimized and efficiency maximized, then in market competition, it will no longer be the one "squeezed out," but the one that takes the initiative to "raise its head."

Data shows that leading companies in the global steel industry are committed to technological innovation, pursuing lighter, stronger, and more durable steel products. This technological upgrade can not only reduce costs but also quickly enhance competitiveness in the global market.

Countries around the world are paying more and more attention to environmental policies, which is both pressure and motivation for the steel industry. The high energy consumption and high pollution of traditional steel industries have long been "targeted," and changes must be made. Green steel has become a new direction, with concepts such as low-carbon emissions and renewable energy steel becoming popular.

If the steel industry can catch this environmental express train, the future market is not small. According to data analysis, the global demand for environmentally friendly materials is increasing every year, especially in the construction industry, where green buildings are becoming more and more popular. If steel companies can take the lead and develop new types of steel that are both environmentally friendly and efficient, the future market prospects may be beyond imagination. Who wouldn't want steel products that are both "low-carbon" and "high-quality"?However, relying solely on technology and environmental protection is not enough; diversification of the industrial chain and the development of new markets are equally important. This is because the steel industry has traditionally relied heavily on the construction and infrastructure sectors for its sustenance. Now, it must learn to walk on multiple legs. To reduce dependence on the traditional construction industry, steel companies should cast their gaze further afield and look at emerging markets.

For instance, consider the high-tech manufacturing sector, which includes new energy vehicles, wind energy equipment, smart homes, and more. The demand for high-quality steel in these emerging markets will only continue to grow. Data indicates that the global new energy market is growing at an annual rate of 30%, which is essentially a new blue ocean for the steel industry.

Additionally, international infrastructure projects, such as the "Belt and Road Initiative," also provide a significant demand for steel. Participating in these global construction projects will help companies expand into broader markets and alleviate the pressure of market saturation in their domestic arenas.

Of course, whether the steel industry can truly be "resurrected" depends on the companies' ability to adapt flexibly to market changes. Not all enterprises can survive a crisis; only those willing to actively adjust and continuously innovate can find new opportunities for growth.

For example, by adjusting the industrial structure to reduce unnecessary production waste and precisely target high-value-added markets, companies can improve production efficiency. As industry experts have said, "Only companies that stand firm in the storm can see the rainbow after the storm." Enterprises need to maintain constant market sensitivity and adjust their strategies flexibly to break through the dilemma in this competition.

Conclusion

The future of the steel industry is full of challenges but also opportunities. Technological innovation, green transformation, market development, and flexible response strategies are all key to steel companies breaking through difficulties. How do you think steel companies should find their own "lifebuoy" in this transformation?