KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
China’s steel industry, the largest in the world, is confronting a crisis more severe than the downturns experienced in 2008 and 2015, according to China Baowu Steel Group Corp, the world’s biggest steel producer. The company has warned of a prolonged and challenging period ahead, likening current conditions to a “severe winter.”
Key Highlights:
Crisis Deeper Than Expected: Hu Wangming, Chairman of China Baowu Steel Group, conveyed a stark message during the company’s half-year meeting, stating that the crisis is expected to be “longer, colder, and more difficult to endure” than initially anticipated.
Dwindling Domestic Demand: China’s steel market is under significant pressure due to a property downturn and weaker factory activity, leading to a dramatic drop in domestic demand. Steel prices have plunged to multiyear lows, and mills are experiencing mounting losses.
Historical Comparisons: The current downturn is being compared to the devastating slumps of 2008-2009 during the Global Financial Crisis and the crisis of 2015-2016. However, unlike past recoveries, which were driven by massive stimulus efforts, such interventions seem unlikely in 2024 as Chinese President Xi Jinping focuses on reshaping the economy.
Focus on Cash Preservation: Baowu’s response to the crisis emphasizes the need for cash preservation over profit. The company’s financial departments are urged to enhance controls, especially regarding overdue payments and the detection of fraudulent trades, underscoring the importance of cash flow during these challenging times.
Impact on Production and Exports: The crisis has led to swelling iron ore inventories and a significant drop in steel prices, particularly for construction materials like reinforcement bar, now at their lowest since 2017. With production becoming increasingly unprofitable, mills are under pressure to reduce output, while Chinese steel exports are on track to exceed 100 million tons, the highest since 2016.
Falling Iron Ore Prices: Reflecting the darkening outlook, iron ore prices have dropped below US$100 per ton, with futures down 1.7% to US$96.85 on Wednesday, marking a more than 30% decline for the year.
Outlook: Baowu’s warning signals deepening troubles for the global steel industry, with implications that extend far beyond China. As the sector braces for a tough period ahead, the focus will be on navigating this “severe winter” by prioritizing cash preservation and risk management.
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