The steel industry is now experiencing a period of total excess production with loss-making capacity

?Although there are no exact statistics, it is estimated that my country’s steel production capacity has reached 900 million tons, and there is room for continued growth in quantity. Very small. The words of Li Xinchuang, Executive Deputy Secretary-General of the China Iron and Steel Industry Association, at the 8th Steel Industry Development Strategy Conference recently revealed the real reasons for the continued downturn in the steel industry.

The steel industry suffered an industry-wide loss for the first time

As a basic industry, the sluggishness of the steel industry in recent years has attracted attention. In the first quarter of this year, the steel industry achieved a net profit of negative 1.034 billion yuan, which was the first industry-wide loss since the new century. It was also the industry with the largest decline in industrial profits in the country.

Yang Siming, chairman of Nanjing Iron and Steel, said that the current serious losses in the main steel industry show three unprecedented characteristics:

First, the larger the enterprises, the more serious the losses. Almost all listed steel companies that have announced first-quarter performance forecasts have lost: Shougang Co., Ltd. has a preliminary loss of more than 140 million yuan, Valin Steel Co., Ltd. has a preliminary loss of more than 690 million yuan, and Anshan Iron and Steel Co., Ltd. has a preliminary loss of 1.89 billion yuan.

Second, large private steel companies, which have been developing well for many years and have never suffered losses, have also begun to lose money in their main business. In 2011, the average sales profit margin of my country's steel industry was 2.42%, and private enterprises reached 2.7% with their flexible operating mechanisms and good cost control. The loss of this part of the company is undoubtedly a dangerous signal.

The third is that enterprises supported by investment and mainly engaged in construction steel have entered the loss channel after plate enterprises. This means that as the dividends from the 4 trillion yuan plan are exhausted, it will be difficult to find a decent bright spot for downstream demand for steel.

Although in March, as domestic steel prices turned from falling to rising, key steel companies made profits of more than 2 billion yuan, diluting the impact of huge losses in the previous two months, iron ore prices also fell for five consecutive months. Months later, the upward trend appeared again. It has now exceeded US$150/ton, and has risen to nearly US$20/ton at its lowest point. Zhao Xiang'e, a researcher at Huatai United Securities, believes that this will make it difficult for steel companies to fundamentally improve their profits.

?Decapacity? will become a trend

From huge profits to meager profits, and from meager profits to losses, the steel industry has experienced tremendous changes in just five years.

The skyrocketing price of iron ore was once considered the main reason for the decline of the steel industry. However, since the second half of last year, ore prices have dropped from over US$190/ton at the peak to US$150/ton, a drop of more than 20%. During the same period, the losses of steel companies once exceeded 40%. ?It can be seen that the losses of steel mills cannot be entirely attributed to the increase in iron ore prices, but more reasons must be found from within. ?Liu Haimin, deputy director of the Metallurgical Industry Economic Research Center, said

Over the past five years, the production capacity of my country's steel industry has expanded rapidly. In 2012, my country's crude steel production capacity was only 550 million tons, but now it has reached 900 million tons. According to the 12th Five-Year Plan for Iron and Steel, my country's peak demand for crude steel is only 770 million tons to 820 million tons.

Wu Wenzhang, a senior industry insider and general manager of Steel Home, said that before 2012, the overcapacity in China's steel industry was structural and phased. However, starting from 2012, the industry entered a stage of comprehensive surplus. That is to say, the supply of major steel products exceeds demand, and there is little room for further growth in steel consumption. Overcapacity will exist for a long time as the main contradiction in the operation of the steel market.

Experts believe that "decapacity" will become the future trend of the steel industry. This includes eliminating backward production capacity, accelerating mergers and reorganizations, and improving industry exit mechanisms. In this process, it is necessary to avoid the intervention of non-market forces.

For example, Valin Steel, which originally suffered a huge loss last year, barely made a profit because it received more than 1 billion yuan in subsidies from local governments. The second largest shareholder of Valin Steel is the multinational company ArcelorMittal, with a shareholding ratio of about 30%, which means that 300 million yuan of the 1 billion yuan subsidy was given to foreign capital. Whether such subsidies are reasonable is debatable. ?Some experts think.

From focusing on PPI to taking into account CPI?

Faced with the severe situation, Li Xinchuang pointed out that the core task of the steel industry this year is to "ensure profitability".

Strictly controlling output is the unanimous view of the industry, but it is difficult to implement. With the recent rise in steel prices, the average daily output of crude steel has rebounded rapidly, reaching a record high of 2.03 million tons by early April, far exceeding the 1.87 million tons last year.

?In the second quarter, driven by the improvement of the financial environment and the acceleration of affordable housing and infrastructure construction, domestic steel prices are expected to continue their upward trend. However, the accelerated release of production has put steel prices at greater risk of falling back in the later period. ?Steel spot trading platform?Nishimoto Shinkansen?Deputy General Manager Sheng Zhicheng said.

Since steel prices do not meet the conditions for a sharp rise, more companies choose to enter the non-steel industry. In Wu Wenzhang's view, steel mills have no choice but to engage in auxiliary industries: last year, Wuhan Iron and Steel's overall sales profit margin was 1.67%, while the non-steel industry reached 3.47%. The latest CPI increase supported by meat prices was 3.6%, while the PPI supported by steel prices was negative 0.3%.

?The steel production process is very long, and there are many derivative opportunities in each link. There is no need to make a fuss about auxiliary industries. ?Li Xinchuang said.

In fact, steel companies are involved in a wide variety of industries, from finance to real estate, from pig raising to selling wine. Some experts reminded that steel mills should pay attention to the correlation with the main business when expanding non-steel industries. For example, ThyssenKrupp, Germany's largest steel company, chose to extend from steel to downstream machinery manufacturing and elevator equipment. While controlling risks, Under the premise, good profits have been achieved.

;