A third of China's steel mills could go bankrupt - Li Gangpo

China's steel industry is entering a dangerous new era as a deepening real estate crisis threatens demand and Beijing's construction-driven growth model looks increasingly untenable.
Nearly a third of China's steel mills could go bankrupt in a crisis likely to last five years, Li Gangpo, founder and chairman of Hebei Jingye Steel Group, warned at a private company meeting in June. “The whole sector is losing money and I don’t see a turning point yet,” he said, according to a transcript of the meeting seen by Bloomberg News.

The real estate crisis has inflated this year, engulfing developers and banks and forcing Beijing to scale back its growth ambitions. Steel mills, which produced over a billion tons last year, about half of global production, are highly vulnerable to a downturn that has also hit iron ore prices and mining operations from Australia to Brazil.

After more than a year of real estate troubles, the outlook is worsening as the government backs out of large bailout programs and maintains strict debt rules. The Purchasing Managers' Steel Index fell to its lowest level since 2008 in July, while Goldman Sachs Group Inc. predicts a 5% decline in demand this year. The real estate sector accounts for at least a third of China's steel demand.
Beyond the current crisis, the industry is facing major challenges as the growth model that has supported China's economy for decades is showing signs of strain. President Xi Jinping appears reluctant to tap into the levels of infrastructure spending and financial stimulus that revitalized the sector after the big financial crisis and the 2015-2016 real estate downturn.

“This time is really different,” said Leland Miller, chief executive officer of China Beige Book International, which keeps an eye on the steel industry. “As real estate has lost its role as the main driver of growth, key commodities such as steel no longer have the benefit of endless access to credit.”

In the short term, the main hurdle for the steel industry is the high volume of construction in progress, as evidenced by the recent spate of mortgage boycotts. Structural steel prices have also fallen, and rebar — twisted steel bars that reinforce concrete — fell to a two-year low last week. This is despite production falling to the lowest level in Mysteel's 2015 data.