Chinese steel mills are suffering Prisoner's Dilemma
China Steel Association on Wednesday had said the steel plant will significantly cut next year, while Macquarie analyst recently after Chinese steel mills on-site visits that since local governments, banks, steelmakers for their own interests to consider, resulting in "Chinese steel mills difficult cuts "situation. China, including iron and steel industries, including commodities into a "prisoner's dilemma" - not only can not cut, is still increased leverage to avoid losses.
One of the biggest syndicated Macquarie Bank analyst team in the steel plant site visits to China, "China Steel long Excluding losses have continued stimulation" attitude was very "not optimistic."
Bloomberg News quoted a senior analyst at Macquarie ColinHamilton pointed out that "Chinese steel mills are increasing leverage to compensate for the loss." For example: to encourage traders prepayments, small private steel mills VAT relief appeal to help ease steel prices fell with to adverse effects.
Chinese local governments to preserve employment and maintain because of the local revenue, does not allow steel mills closed down. The current situation is that the steel plant in order not to lose market share, adding new funding is desperately to avoid shutdown. It almost made them into a dilemma of "Prisoner's Dilemma."
In addition, in order to avoid bad debts increase, banks are not allowed to close down mills. An iron ore trader said, the loan renewal next year has been completed, which means that liquidity before tightening the end of this year the market may not have thought seriously.
Chinese Academy of Social Sciences Professor Liu Yuhui recently given objections by the micro-channel private accounts: "clearing has been ongoing, do not misjudge."
He pointed out: China no anti assault early, and can not understand the Chinese reluctant clearing paranoid. From the production point of view, China is adding endure clearing, many assets already in a shutdown state (mining, steel, chemicals, etc.), the worker does not work or a day or two classes a week, but no final factory method body shell crack , debt and assets prior suspension, no liquidation, may be keeping these people in the industry (the actual unemployment) A state relief (also made temporary relief wage management sites), until a more mature society mechanisms underpinning push out gradually to replace.
Due to the demand side could not find any bright spots, China Iron and Steel Association last Wednesday is expected to reduce the country's steel production 23 million tons next year. This is equivalent to the United States more than a quarter of annual production. Steel Association Deputy Secretary-General Li Chong on Wednesday in an interview when he said, because the further decline in domestic demand and increasingly severe resistance overseas exports, is expected to supply major steel mills may fall 2.9 percent in 2016, from 2015 It dropped to about 783 million tons 806 million tons.