China’s steel output to shrink 20%, exec says

China’s steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country’s secondlargest mill by output, which raised the prospect that nationwide production may shrink 20 percent.

Losses for the industry totaled $2.8 billion in the first eight months of the year compared with a profit of $2.2 billion in the same period a year earlier, Shanghai Baosteel Group Corp. Chairman Xu Lejiang said on Wednesday. Output may eventually contract by a fifth, matching the experience seen in the U.S. and elsewhere, he said.

After decades of expansion, China’s steel industry has been thrown into reverse as local demand contracts for the first time in a generation amid slowing economic growth and a property downturn. The slowdown has pummeled steel and iron ore prices and prompted Chinese mills to seek increased overseas sales, boosting trade tensions. The country is the linchpin of the global industry, accounting for half of worldwide production.

“If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20 percent,” Xu told reporters at a forum in Shanghai. “China will eventually get there as well, regardless how long it takes.”

Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase was emblematic of the country’s emergence as Asia’s largest economy. Output probably peaked last year at 823 million metric tons, according to the China Iron & Steel Association. The country produced 608.9 million tons in the first nine months, 2.1 percent less than the same period last year, the statistics bureau said on Monday.

“The whole steel sector is struggling and no one can be insulated,” Xu said. “The sector is facing increasing pressure on funding as banks have been tightening lending to the sector — both loans and the financing provided for steel and raw material stockpiles.”

Losses in China’s steel industry are unprecedented, Macquarie Group Ltd. said in a report earlier in the week that summarized deteriorating sentiment in the industry. While small mills have already cut production significantly, big mills are still holding out, the bank said, forecasting further cuts.

“We are talking about output contracting by 20 percent, not just capacity,” Xu said, adding that Shanghai Baosteel Group may be able to report a small profit this year.