The bank’s investment arm has revised its global steel forecasts down by 0.5 per cent this year and cut its growth outlook for next year from 3.3 per cent to 1.9 per cent,citing weaker steel production and consumption amid increasing signs that China’s downturn is “structural rather than cyclical.”
“Leverage and liquidity issues continue to grow in China with more property developers facing bankruptcy,new loan numbers at decade-low levels and problems now spreading to the wealth management industry,” RBC said.
China Evergrande Group last week sought Chapter 15 bankruptcy protection in New York and the country’s largest property developer,Country Garden Holdings,is edging towards default on loans asreal estate sales plunge across the country. Chinese authorities are grappling with a liquidity crisis at private wealth manager Zhongzhi,as the fallout from a deepening property slump spreads to the country’s $US2.9 trillion ($4.5 trillion) trust industry.
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China’s woes are intensifying concerns about demand for iron ore,from which Australia’s major miners Rio Tinto,BHP and Fortescue Metals Group earned record prices in 2021. The commodity is Australia’s largest export,adding $41 billion to federal government taxes last year and underpinning Treasurer Jim Chalmer’s $4.2 billion budget surplus.
Barrenjoey head of mining research Glyn Lawcock said China aims to hold steel production flat at around a billion tonnes a year to avoid surpluses and contain prices. Production is running 2 per cent higher this year,Lawcock said. “They’re going to really slam on the brakes in the last four months.”
Rio’s boss Jakob Stausholm recently warned steel production in China is reaching a saturation point and will now begin to decline,with growth in iron ore demand coming instead from India and Asia. Stausholminsists Rio is in a stronger position than others to ride out any falls in commodity prices from weakening demand because of its lower operating costs.