Chinese commodities producers centered on the old economy are still bearing the brunt of the nation’s economic slowdown, with steelmakers and crude oil processors in particular continuing to rack up losses.
Cumulative losses in the world’s biggest steel industry swelled to 34 billion yuan (US$4.8 billion) over the first nine months of the year, while the oil refining sector saw losses deepen to 32 billion yuan over the period, data released by the Chinese National Statistics Bureau showed on Sunday.
Steel mills have been forced to slash output to protect margins hammered by China’s protracted property crisis. Bankruptcies could beckon.
Photo: AFP
Oil refiners are also cutting runs, with weak demand for fuels exacerbated by the nation’s rapid uptake of electric vehicles.
Nonetheless, steel stocks rallied sharply yesterday after China’s main industry association said it would propose policies to encourage consolidation among members and urged firms to refrain from cutthroat competition, moves that could benefit the big state-owned producers.
“The association has started to accelerate relevant research, conduct special investigations, and propose a package of policy recommendations to promote joint restructuring and improve exit mechanisms,” the China Iron & Steel Association said in a statement on Friday last week.
Vicious competition and poor profitability would harm other priorities including technological innovation and environmental protection, the association said in the statement.
It also said that exports — which hit their highest level since 2016 this year — were at “severe” risk from protectionist measures around the world.
Beijing’s measures to stimulate the economy are being closely watched for their impact on raw materials demand. Oil consumption could get a modest lift, according to Goldman Sachs Group Inc, although the focus on clearing China’s housing stock rather than boosting new starts would limit the impact on the steel market.
The steel and oil refining industries are the only major sectors tracked by the statistics bureau that have failed to accumulate profits over the year so far, but other commodities producers are also feeling the pressure of a tepid economy and problems with overcapacity.
Coal mining profits have dropped 22 percent over the year to date, due to the impact of oversupply on prices. Chemicals makers, which typically use fossil fuels as feedstock, have seen their income fall 4 percent.
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