China's steel sector suffers losses

The dramatic changes in China's steel industry reportedly resulted in losses for more than half of the largest producers in the past year.

The country's metallurgy, which accounts for more than half of world production, last year for the first time since 1981 reduced steel production by 2.3 percent. Reduced demand for steel as construction and heavy industry plummeted, drove the PMI in China's manufacturing in January to 49.4 from 49.7 in December. PMI readings below 50 indicate a decline in activity.

Liu-Gang Liu, chief economist at ANZ China, said the "cuts in the manufacturing sector are even more entrenched." Liu noted that steel production fell 12 percent in December and January year on year. The slowdown in China's economic growth hit domestic demand for steel in 2015, including the real estate sector and other industries reluctant to launch new projects amid overhanging inventories. The CISA, blaming the industry's losses on falling domestic prices, clarified that the price index fell more than 30 percent during 2015.

However, plant closures remain unlikely despite losses, in part due to fears that subsequent job losses could lead to social instability. The closure of such companies could mean the layoff of 400,000 workers, according to a recent report by Li Xinchuang, head of the China Metals Industry Planning Institute and Research Center.

Faced with these challenges, China is ramping up its exports to keep the industry at full capacity. In 2015, China's steel product exports rose more than 20 percent to 112 million tonnes.

The flooding of the global market with Chinese steel is fueling trade protectionism as companies in other parts of the world struggle to compete with Chinese prices. In 2015, there were 37 cases of filing charges against Chinese steelmakers, usually on anti-dumping grounds.