China's steel mills may have taken a wrong turn by adding millions of tonne...
BEIJING - China’s steel mills may have taken a wrong turn by adding millions of tonnes of new high-end capacity just as the country’s car sector, a key steel consumer, undergoes its first contraction in decades, cutting metal demand.
Sliding demand for hot-rolled coil is a further barometer of China’s lagging industrial sector which is struggling with lower profits amid a trade war with the United States. Weakening steel end-user demand will add to the government’s concerns about job layoffs as Chinese economic growth was at its slowest in 28 years in 2018.
Profit margins for HRC shot to more than 1,100 yuan per tonne in 2018 as benchmark futures prices pushed beyond 4,000 yuan a tonne to record highs. That prompted mills to expand their capacity even further, and 20 million tonnes per year of new HRC lines are set to start up this year. With the additional hot-rolled coil capacity, higher raw material costs and flat demand, profit margins for the HRC sector as a percentage of earnings before interest, taxes and depreciation are set to slump to 6 percent this year, down from an EBITDA margin of 15 percent in 2018, said Kevin Bai, an analyst at CRU in Beijing.
Beijing has promised subsidies to boost sales of some vehicles and analysts expect demand to gradually pick up from the second quarter. But even then, government and industry forecasts say that demand growth will be at most 2 percent in 2019.“It’s particularly demand from the inland small cities that is weak.
Aluminum car bodies are already being used by Ford Motor Co, Jaguar Land Rover and a range of new energy vehicle brands like Tesla and Nio.
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