Smokestack industries such as steel still drive China’s economy. Now that the country has reopened and the property market is coming back to life, demand for steel should rise. BHP and Rio both predict steel production will increase this year. In fact, steel prices held up throughout the shutdown and product inventories have peaked. Could the worst be over? Unfortunately, not yet. 

The wider picture is a confusing one. Chinese steel output as of mid-March had not fallen much compared with last year, says BMO Capital Markets. This is probably because shutting down blast steel furnaces takes some time. Steel inventories have piled up and only recently began to fall from near 10-year highs. Although government support has given traders hope — with reinforced bar prices only a few per cent off this year’s peak — gross profit margins per tonne are about zero or less. Steel prices are too low to support this level of output.

Meanwhile, the IMF has forecast that the world will suffer an economic output loss this year that dwarfs the financial crisis. China may have ended its nationwide shutdown but the government has not opted to raise stimulus to crisis levels. The total amount President Xi Jinping has promised to spend — bridge financing plus fiscal stimulus — adds up to 2.5 per cent of its GDP. This is just a fraction of the proportional firepower used in the global financial crisis. Back then Beijing used huge fiscal and monetary stimulus to resuscitate China’s economy. Beijing injected the equivalent of 19 per cent in 2009 alone, according to an OECD report.