Beijing authorities have recently launched a major crackdown on commodity prices, talking to and warning relevant industries not to manipulate prices, causing China’s steel market to plummet in half a month. Experts believe that Beijing may intend to use this to reduce the long-standing problem of overcapacity in the steel industry.
Beijing authorities have recently launched a heavy-handed crackdown on steel and aluminum prices, including interviews with operators, revocation of business licenses or suspension of operations, which has caused iron ore prices to plummet.
By May 27, rebar and hot-rolled coil prices had fallen 22.4 percent and 22.9 percent from their highs two weeks ago, and the Platts iron ore index had fallen from a record high of $233.1 per ton to $191.6 per ton.
Mainland industry insiders used “fire and ice” to describe the past two weeks of market volatility, in the “buy up not buy down” steel market, the current downstream industry is still on the sidelines, waiting for prices to dip.
Taiwan’s overall economist Wu Jialong believes that Beijing is ostensibly responding to rising commodity prices, but in essence is to solve the problem of overcapacity in the steel industry.
Taiwan economist Wu Jialong: “From the time Wen Jiabao was the premier, the 4 trillion fiscal stimulus launched, there is a lot of expansion of the steel industry’s production capacity, this excess capacity, which later evolved into the United States tariffs on the steel industry, and into a comprehensive tariff war, so the source of the trade war is actually in the steel industry, so now the excess capacity of the steel industry to deal with It’s probably only a matter of time before it’s gone.”
When the U.S. offered anti-dumping duties on Chinese steel and aluminum in 2018, mainland steel companies, with government subsidies, diverted production to Vietnam and Serbia for re-sale to the U.S., or became exclusive suppliers to Belt and Road infrastructure projects. Now, some of the Belt and Road projects are being boycotted, and the construction of domestic high-speed rail and subways is becoming saturated.
Taiwan’s overall economist Wu Jialong: “Because it is now a serious overcapacity in the steel industry, well, to export is not the way, so now we have to start suppressing the steel industry, down, at least to import iron ore from abroad this sense of urgency also disappeared, otherwise, you have to import iron ore from Australia, from other places well. Performance may talk to you to fight prices, in fact, the fundamental problem is to solve overcapacity.”
The outside world believes that Beijing to cut steel production capacity, must start from limiting manufacturing, real estate demand, but this will also affect economic growth, while caught in a dilemma.
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