BHP plunges as world’s biggest steel producer warns of industry crisis

Iron ore futures fell to the lowest since May 2023 on Wednesday, as the world’s biggest steel company issued an alarming outlook of an industry-wide crisis in China that carries the potential to ripple around the globe and plunge the sector into a deeper downturn.

Conditions in China’s steel sector are like a “harsh winter” that will be “longer, colder and more difficult to endure than we expected,” China Baowu Steel Group chairman Hu Wangming told staff at company’s half-year meeting, according to Bloomberg, warning of worse challenge than previous traumas in 2008 and 2015.

Baowu produces ~7% of the world’s steel, and its commentary is tracked closely as a view to the market mood in China.

Singapore iron ore futures fell as much as 3.4% to $95.20/ton, and rebar futures in Shanghai plunged more than 4% to the cheapest level since 2017.

Shares of BHP (NYSE:BHP), which derives much of its revenue through iron ore sales to China, -2.8% pre-market.

As China’s steel mills struggle, iron ore inventories are rising, while rebar steel used in construction is cheaper than at any time since 2017, making it increasingly unprofitable to make steel; meanwhile, steel shipments from China are on track to reach ~100M tons this year, the highest since 2016.

Earlier this month, no. 2 global steel producer ArcelorMittal (MT) said China’s rising exports had placed the global market in an “unsustainable” condition.

Other potentially relevant stocks include BHP (BHP), Rio Tinto (RIO), Vale (VALE), Fortescue (OTCQX:FSUMF), Glencore (OTCPK:GLCNF) (OTCPK:GLNCY), Anglo American (OTCQX:AAUKF) (OTCQX:NGLOY), US Steel (X), Cleveland-Cliffs (CLF), Nucor (NUE), Steel Dynamics (STLD).