STEEL producers ran up losses for the first time in three years this month as prices slid into a bear market on weak demand and near-record supply, ending years of solid profit margins.

And with the world’s No. 2 economy cooling and facing increased risks from a trade war with the United States, China’s steelmakers are likely to feel more pain unless the government launches fresh stimulus measures, traders and analysts say.

Amid tumbling prices, Chinese mills — which make half the world’s steel — are reining in costs by returning to cheaper, low-grade raw material iron ore, in a boon for miners like Australia’s Fortescue Metals Group.

China’s steel production hit a record 82.55 million tons in October, but steel prices and margins have since shrunk as China dialed back on winter output curbs aimed at cutting smog, while demand weakened as cold weather slows the construction sector.

“Fat margins were caused by firm demand and tight supply, which is unsustainable in the long term,” said CRU analyst Richard Lu. “This decline is not temporary but the start of a downward trend.”

China’s steel producers had been in party mode since 2016 when prices doubled as a strong infrastructure push boosted demand, and supply tightened as the country’s tough anti-pollution campaign disrupted production.

China also removed 140 million tons of low-end steel capacity in 2017, equal to about 17 percent of that year’s total output.

Profit margins surged to a record 1,706 yuan (US$246) a ton for rebar and 1,326 yuan for hot rolled coil in December 2017 and have stayed high this year, pushing mills to ramp up output.

But as demand began to falter this month, mills were left with surplus steel, compounded by more lenient production curbs this winter as China allows regions to set their own output restrictions based on emission levels.(SD-Agencies)