The hottest Macquarie China steel plant is in a pr

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Macquarie: China's steel mills are in a prisoner's dilemma

Macquarie: China's steel mills are in a prisoner's dilemma

- while further reducing product costs, 26 China Construction Machinery Information

CISA said last Wednesday that steel mills will significantly reduce production next year, and Macquarie analysts pointed out after a recent on-site visit to China's steel mills that due to local governments, banks, and steel producers' interests, As a result, it is difficult for Chinese steel mills to reduce production. China's bulk commodity industry, including steel, is in a "prisoner's dilemma" - not only unable to reduce production, but also increasing leverage to avoid losses

the analyst team of Macquarie Bank, one of the largest syndicates in Inner Mongolia and Australia, expressed very "not optimistic" about the attitude of "China's steel leaders will continue to increase production regardless of losses" after the on-site inspection of Chinese steel mills

Colinhamilton, a senior analyst at Macquarie, pointed out, "Chinese steel mills are increasing leverage to compensate for losses." For example, traders are encouraged to pay in advance, and small private steel mills are called for value-added tax relief to help alleviate the adverse impact of the decline in steel prices due to the characteristics of the construction industry

Chinese local governments do not allow steel mills to close down because of ensuring employment and maintaining local fiscal revenue. The current situation is that in order not to lose market share, steel mills are desperately increasing new capital investment to avoid shutdown. This almost put them in a dilemma of "prisoner's dilemma"

in addition, in order to avoid the increase of bad debts, banks do not allow steel mills to close down. An iron ore trader said that the loan renewal next year has been completed, which means that the tightening of liquidity before the end of this year may not be as serious as the market imagined

Liu Yuhui, a professor of the Chinese Academy of Social Sciences, recently gave an objection through his private account: "the clearance has been going on, don't misjudge."

he pointed out that China has long had no counter charge, and we cannot be paranoid about China and are unwilling to clear up. From the perspective of production, China is putting up with the liquidation. Many assets have long been in the state of shutdown (mines, steel, chemicals, etc.), workers do not go to work or work a day or two a week, but the body of the factory law is not finally broken, debt and assets are suspended first, and there is no bankruptcy liquidation. It may be to maintain a state of relief for these working people (actual unemployment) (as well as a temporary management place for the payment of relief wages), Until a more mature social underpinning mechanism is pushed out and gradually replaced

as there is no bright spot on the demand side, the China Iron and Steel Industry Association predicted last Wednesday that the national steel production will be reduced by 23million tons next year. This is equivalent to more than 1/4 of the annual output of the United States. Li Xinchuang, Executive Deputy Secretary General of CISA, said last Wednesday that due to the further decline in domestic demand and the increasingly severe export resistance abroad, the supply of major steel mills is expected to fall by 2.9% in 2016, from 806 million tons in 2015 to about 783 million tons

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