China’s steel mills and oil refiners bear brunt of tepid economy

CHINESE commodities producers centred 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 (S$6.3 billion) over the first nine months of the year, according to data for September released by the statistics bureau on Sunday (Oct 27). The oil refining sector saw losses deepen to 32 billion yuan over the period. Profits at industrial firms more broadly declined at a faster pace than a month earlier.

Steel mills have been forced to slash output to protect margins hammered by China’s protracted property crisis. Bankruptcies could beckon. Oil refiners are also cutting runs, with weak demand for fuels exacerbated by the country’s rapid uptake of electric vehicles. China wraps its third-quarter earnings season this week, with releases due from both its biggest steelmakers and oil and gas companies.

Beijing’s recent 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, although the focus on clearing China’s housing stock rather than boosting new starts will limit the impact on the steel market.

The two 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 per cent over the year to data, due to the impact of oversupply on prices. Chemicals-makers, which typically use fossil fuels as feedstock, have seen income fall 4 per cent. BLOOMBERG