The End of Debt-Led Growth is Shrinking China’s Steel Industry

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Cold-rolled steel

5 months ago, Hao Liwei was living the good life, funded by a 36% annual return on a property investment. Then her nightmare began.

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Interest payments ceased in August and attempts to recover her money failed. Her home town, the Chinese steel-production city of Handan, 450 kilometers (280 miles) southwest of Beijing in Hebei province, was grappling with plunging demand for steel and plummeting prices. Economic growth slumped to 5.5% in the first 9 months of last year, from 10.5% in 2012.

“The sky collapsed and I thought of killing myself,” Hao, 40, now a taxi driver, told Bloomberg News. “It was just like a dream: I had everything but when I woke up it was all gone.”

Hao is among the collateral damage as China reins in years of debt-fueled investment-led growth that’s evoked comparisons to the period preceding Japan’s lost decades. As policy shifts China toward greater consumption and innovation-led growth, Handan’s reliance on the steel industry for expansion has left it among cities feeling the brunt of adjustment pain.

Chinese HRC saw a 2.8% drop on Friday, January 16, landing at CNY 2,810 ($454.38) per metric ton and making it the biggest mover of the day. Chinese slab saw its price drop 0.8% to a 30-day low of CNY 2,630 ($425.27) per metric ton last Friday. The price of Chinese coking coal was unchanged at CNY 1,080 ($174.64) per metric ton. The price of iron ore 58% fines from India hit a high price of CNY 840.00 ($135.83) and a low price of CNY 840.00 ($135.83) per dry metric ton.

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The cash price of steel billet continues hovering around $500.00 per metric ton on the LME for the fifth day in a row. The 3-month price of steel billet saw little movement on the LME at $480.00 per metric ton.

The 3-month price of the US HRC futures contract fell 1.4% to a 30-day low of $580.00 per short ton last Friday. The spot price of the US HRC futures contract saw little change in its price last Friday at $590.00 per short ton.

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