Chinese steel industry profit margins collapse

Hugh Hendry coined the "Confucian" aphorism, "Wise man not invest in overcapacity."

Chinese steel industry profit margins hits a historic low, 0.47% profit margin far below interest rates 钢企利润率创历史新低 0.47%利润率远低于利率水平 October profits fell 82% from September. Inventories are up 20-30% over the start of the year. Steel industry debt ratio is 67% and most of the debt is in the form of bank loans. Banks currently pay 3.50% interest on one-year deposits. Since steel is considered a fundamental industry for infrastructure and national development, bank loans have not been restricted and fixed asset investment in mining grew 17.4% over last year, while smelting and rolling fixed asset investment grew 18.9%.

Below is the Baoshan Compostite Steel Price Index, based on contracted prices. The first chart shows the drop in 2008, the second is the recent price decline.

Here's a short English article covering the news: Chinese steelmakers see profits plunge

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