China’s major steelmakers have recorded net losses over the first nine months of the year of CNY 28.12 billion ($4.42 billion), according to the China Iron and Steel Association (CISA). With smaller steelmakers already beginning to cut back production, these are the producers which will decide the market over the coming weeks, Kallanish notes.

49 major steelmakers recorded losses totalling CNY 450.42 billion, a 352.85% year-on-year increase. Across the total 101 companies, the net losses from steel operations hit CNY 55.27 billion as many companies were relying on non-steel businesses to bolster their results. Of China’s 35 listed steelmakers, 23 have reported losses over January-September.

The key issue is when steelmakers will reduce output in order to recover some of their lost margins. Some steelmakers are trapped in a cycle of debt repayment, whereby the lost revenue from lower sales volumes would leave them unable to repay their financial liabilities.

Those that can afford to cut production are now expected to do so, however. Analysts say the net effect of this will be to shift pressure increasingly onto the iron ore market. If iron ore prices fall, steel prices could do also as end-use demand remains flat. There would be some opportunity to reclaim margins, however, and it is the only opportunity available in the short term.