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  • Allocation Market

    The dreaded ‘A’ word connotes something far worse for many metal buying organizations. Are you struggling to find steel in this market?

Anyone following the financial papers cannot have failed to read lurid reports regarding China’s Evergrande construction company, which appears on the brink of collapse.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

Chinese markets fall on Evergrande crisis

Indeed, stock markets in China took a heavy fall this week on news that the world’s most indebted construction firm could fail to repay interest coupons due this week and next.

Evergrande was valued at $41 billion in 2020. However, its market capitalization fell to just $3.7 billion now, as it became apparent the highly leveraged company with total liabilities of some $300 billion was struggling to repay a modest onshore interest debt this week.

Evergrande’s woes are merely the symptom of a much bigger problem.

As the Financial Times notes, China’s vast real estate sector, which contributes some 29% of the country’s gross domestic product, is so overbuilt that rather than leading as China’s prime driver of economic growth, it is fast becoming a drag on it.

According to the Financial Times, there is enough empty property in China to house over 90 million people. To put that in perspective, there are five G7 countries – France, Germany, Italy, the U.K. and Canada — that could fit their entire populations into those empty Chinese apartments, with room to spare.

Oversupply has been a problem for several years. But after much prevarication, President Xi Jinping has formulated three red lines to reduce debt levels in the sector. While by no means the only perpetrator, Evergrande has failed all three red lines. Those lines are the ratio of liabilities to assets, of net debt to equity, and cash to short-term debt.

However, it is simply the first and largest to be thrown to the wolves as an example to the rest.

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The U.S. steel capacity utilization rate fell slightly but remained at a healthy 84.9% for the week ending Sept. 18, the American Iron and Steel Institute reported this week.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

Steel capacity utilization hits 84.9%

hot-rolled coil steel

taitai6769/Adobe Stock

U.S. steel capacity utilization last week fell to 84.9%, down from 85.3% the previous week. However, the rate remains up significantly from the 68.6% during the same week in 2020.

U.S. steel output last week totaled 1.87 million net tons. The total marked a 0.4% decline from the previous week.

However, steel output increased by 21.9% on a year-over-year basis.

For the year to date, production totaled 67.66 million net tons, AISI reported. Meanwhile, steel capacity utilization during the period reached 80.9%.

Production in the year to date is up 20.2% from the same period last year, when the capacity utilization rate reached 66.8%.

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