China’s steelmakers cool competitive fires as price war cuts profit margins
Facing chronic oversupply and government demands to end a cost-cutting race to the bottom, China’s steel industry looks for solutions
As a fierce price war threatens to turn their revenues microscopic, China’s steel firms are calling for changes to make the industry less self-destructive – a move in line with directives from Beijing to suppress a downward spiral that has degraded multiple sectors of the country’s economy.
While acknowledging the seemingly endless drive to reduce prices is erasing profit margins, industry insiders still struggle to find a market for their chronic oversupply, and expressed scepticism over the extent to which the state-led campaign can alleviate their burdens.
“Steel firms are selling below cost to clear inventory and maintain cash flow, but the more we produce, the more we lose,” said Michael Cao, who owns a mid-sized steel company in the northern province of Hebei that employs over 100 workers.
“This is actually drinking poison to quench thirst,” he said. “You may survive for now, but you’ll ultimately need to rely on innovation and differentiated services for lasting change.”
However, Cao added, the massive amounts of funding required to upgrade factory infrastructure, coupled with shrinking demand, are keeping companies from pursuing innovation and distinguishing themselves in the market.