China's steel industry faces bankruptcy surge amid economic downturn

China's steel sector is bracing for a wave of bankruptcies as the country's economic turbulence continues to wreak havoc on the industry, according to Bloomberg Intelligence.

The steel crisis is seen as a critical turning point, potentially driving the long-needed consolidation of this massive sector.

A staggering three-quarters of Chinese steelmakers experienced financial losses in the first half of the year, raising the specter of insolvency for many, says Michelle Leung, a senior analyst at Bloomberg Intelligence.

Companies like Xinjiang Ba Yi Iron & Steel Co., Gansu Jiu Steel Group, and Anyang Iron & Steel Group Co. are especially vulnerable and could emerge as prime targets for acquisitions, Leung notes.

Calls seeking comments from these companies went unanswered.

China pushes for steel industry consolidation

The current environment may also support Beijing’s goal of tightening control over its steel industry through consolidation.

According to Bloomberg Intelligence, the government is aiming for the top five steel producers to control 40% of the market by 2025, with the top 10 players accounting for 60%.

While this goal is considered within reach, China is expected to lag behind industry giants like South Korea and Japan in terms of market concentration.

China’s steel industry is being reshaped by a prolonged property market downturn and sluggish economic growth.

The head of China Baowu Steel Group Corp., the nation's largest steel producer, has warned that the current crisis may be more severe than those experienced in 2008 and 2015.

With demand plummeting domestically, Chinese mills have turned to exports, a move that has sparked international trade disputes, as countries allege steel is being sold below cost.

Despite growing restrictions from trading partners, China’s steel exports are expected to remain steady until the end of 2026.

According to Bloomberg Intelligence, the overall reduction in production and increasing global trade barriers will eventually weigh on exports.

Housing reforms key to China's growth

On the broader economic front, China’s efforts to rescue its beleaguered housing market are seen as the best path toward achieving 5% economic growth, a goal many economists say is within reach if the government’s housing reform package is fully implemented.

The country’s real estate crisis, however, is expected to last for several more years, which continues to exert downward pressure on the economy.

Additionally, there is speculation that China’s banks may initiate another round of mortgage rate cuts later this year, with analysts anticipating such measures to boost consumption, according to a report in the Securities Daily.

In the financial sector, Citigroup Inc.’s expansion into China has hit a snag due to US regulatory challenges.

According to sources, the Federal Reserve has imposed penalties on the bank over data management and risk control issues, complicating the bank’s plans in the region.