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China's steel industry is racking up enormous losses

Plagued by overcapacity and weakening demand, Chinese steelmakers continued to endure hefty losses in the first 11 months of 2015.

According to Chinese news agency Xinhua, citing data provided by the China Iron and Steel Association (CISA), large and medium-sized steel mills suffered losses of 53.1 billion yuan ($8.18 billion) in the first eleven months of 2015.

Of the 101 steel mills tracked by the CISA, total sales revenue fell to 2.66 trillion yuan, a decline of 19.3% from the same period a year earlier.

A significant decline in steel prices, along with weakening domestic demand, fuelled losses for the sector.

Xinhua reports that steel price slumped by 73.3% to 1,600 yuan a tonne over the past two years, a result of weak domestic demand leading to crippling overcapacity across the sector.

Even a reduction in Chinese crude steel production over the same time period was not enough to stymie losses across the sector.

In the first eleven months of 2015, crude steel production fell by 2.2% to 738.38 million tonnes according to data from the National Development and Reform Commission (NDRC).

The chart below, supplied by the NAB, reveals the recent drop in Chinese domestic steel demand, and as a consequence steel production.

Last month Chinese premier Li Keqiang told told a seminar in Beijing that the nation should strive to upgrade traditional industries in 2016, adding that the government was determined to cut back on overcapacity in traditional industries as well as a large number of zombie enterprises.

Li singled out the nation’s struggling steel and coal sectors, which face severe overcapacity, heavy levels of indebtedness and mounting losses, as areas of particular concern.

While reforms to the sector will likely lead to improved profitability at Chinese steel producers that remain in production, it will do little to assist demand for steel product and the raw ingredients required to produce it.

You can read more here.

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